policy. let me elaborate on these two points in more detail. the objective of monetary policy is to maintain price stability. generally, an environment of stable prices reinforces the stability of the financial system as well. this, however, is not always the case. an environment of low interest rates coupled with low inflation may be conducive to asset price bubbles and the build - up of excessive leverage. in particular, recent research has emphasised the impact that monetary policy, and especially low short - term interest rates, may have on the risk appetite of financial intermediaries and investors at large. this in turn may favour the build - up of imbalances threatening financial stability, even when price stability is preserved. therefore, the question arises whether monetary policy may have to take this effect into account, and consequently should possibly “ lean against the wind ” of unsustainable asset price and excessive credit bubbles. let me clearly say that the interest rate instrument of monetary policy is a rather blunt tool in preventing such bubbles from appearing. let me add in this context that in my view the credit boom prior to the recent crisis was more triggered by a lack of adequate risk controls, low credit standards and reduced collateral requirements than by the environment of low interest rates. in this sense, macro - prudential supervision and regulation are certainly the best policies to keep asset price developments in line with financial stability objectives. however, central banks should certainly become more wary of systemic financial risks affecting the macroeconomic environment. for this, the strengthening of the analysis of asset prices and credit developments is essential. the monetary policy strategy of the ecb is well founded to take these considerations into account. on the one hand, the analysis of asset prices is part of our economic analysis. while asset prices are only one of many indicators considered in this analysis, the recent crisis has taught us that we need to pay closer attention to potential misalignments and the potential formation of asset bubbles. on the other hand, in our monetary analysis we analyse the developments in money and credit indicators. in particular, our analysis of loan developments, and particularly developments in loans to the private sector, looks at the impact of our monetary policy on the financial sector, as well as the role of these developments in our assessment of risks to price stability. however, the lesson we can take away from the crisis is that this analysis of monetary counterparts, i. e. the developments in private sector borrowing, must become more thorough and systematic in the

manuel sanchez : three issues for mexico ’ s economic outlook remarks by mr manuel sanchez, deputy governor of the bank of mexico, at the united states - mexico chamber of commerce, new york, 14 july 2011. * * * i would like to thank the united states - mexico chamber of commerce for the opportunity to share some of my thoughts on the mexican economy, including both the conditions it faces currently and its outlook. i will focus on three questions which have recently gained particular importance, in the hopes of shedding some light on possible answers. first, do recent indicators of moderation in mexico ’ s economic activity substantially change its growth prospects? second, are capital inflows to the country bound to continue, and if so, will they generate any financial problems? and third, what are the main challenges to the consolidation of price stability in mexico? these comments, of course, are my own responsibility and do not necessarily represent those of the bank of mexico. current and future economic conditions as you know, since the second half of 2009, along with the world economy, mexico has been undergoing a process of economic recovery. the upturn has included positive annual growth rates for the industry and services sectors, which together account for approximately 94 percent of gdp. as a result, by the beginning of 2011, the levels of the monthly global economic activity indicator ( igae ) and of these two main components surpassed their corresponding values prior to the global financial crisis. the improvement of economic conditions has occurred in tandem with the recovery in the united states, mexico ’ s main trading partner. this has been particularly clear in view of the rebound of u. s. industrial production, which maintains a remarkably high correlation with mexican industrial production through its manufacturing - export component. hence, the initial engine of the upturn was external demand through highly dynamic non - oil exports, which account for more than 80 percent of total exports and include a high proportion of automotive exports. domestic demand in mexico has also been in the process of recovering although at a less impressive pace. in particular, consumption, as measured by monthly retail sales, started to exhibit a clearer path of growth only since the middle of 2010. among other factors, this lag may reflect unemployment rates which, on average, have been approximately two percentage points higher than their corresponding average before the crisis. 1 it may also reflect the deterioration of real wages, which has partially reversed course in recent months. both factors may contribute to an explanation of relatively depressed levels of consumer confidence