effectively. on external liquidity dynamics – we will retain a pragmatic approach to handling foreign exchange so that our current account continues to be in surplus, supported by overseas filipino remittances, business process outsourcing ( bpo ) revenues, tourism receipts and exports. we will also manage international reserves as appropriate. our strong external liquidity position will continue to provide a cushion against external shocks. all these would help enable the philippines to remain competitive and be able to hurdle the challenges as well as reap the benefits from the numerous opportunities of the forthcoming asean integration of financial and goods markets. granted, much more needs to be done to make the asean story “ whole ”, we find the initial conditions and our policy thrusts conducive to make this story come true. assessment : given such sound initial macroeconomic conditions, should we / you worry? would any uncertainty rock us / you? and the million dollar question – what can you expect from the bsp? a tilting in any / or all of the risks i enumerated could tip the balance of volatility from low to high. for certain, the sound macro conditions we walked through earlier would help to temper the impact of a significant and sudden shift to greater volatility. but, how each of your individual bottom lines would ultimately be affected would depend on your specific circumstances. clearly, the philippines is in a good spot, and the prospects are bright. our sound fundamental story is intact. this should not, however, lull us to complacency. i admonish each of you to use this time of low volatility wisely – take stock of your positions and carefully reassess these against the risks. it is a fundamental truth – in everything we face, there are two circles of concern that confront us : 1 ) those concerns that are within your control, and 2 ) those outside of your control. quite often, the latter circle is larger than the former. as market practitioners, you need to be mindful of these two circles. what can you control? certainly your risk appetite. controlling this when greed gets the better of you is very difficult. so in a period of low volatility such as what we have been experiencing, practice the discipline of setting limits. this discipline will not only help you to avoid the pitfalls of “ chasing the market ”. more importantly, this discipline will help you take advantage of the obvious opportunities, as well as unearth those that are

– instead of singling out one risk – consider each item on the list and try to address what i believe are burning questions in your mind. let ’ s start with the fed moves. you may ask, will the bsp follow the fed ’ s cue in terms of the timing and magnitude of the lift - off? my answer – not necessarily. we won ’ t have to sing the same tune, but we will certainly have to sing in harmony. what do i mean? recall q2 last year when we embarked on a series of monetary tightening actions. the fed had not yet moved, but markets were certainly talking about it at the time. a number of factors were at play during that period last year. 1 ) domestic inflation was threatening to breach the inflation target on the upside, and 2 ) m3 had been growing over 30 percent as a result of the operational adjustments in our sda facility that we put in place to account for capital inflows. fortunately, the economy was growing robustly then, and therefore there was no need to provide any monetary stimulus. in other words, it was our assessment that the economy could withstand some tightening in financial conditions at that time. you will recall that in our communication then, we further indicated that the moves were also motivated by the anticipation of fed normalization. it was pre - emptive monetary tightening in order to help guide the domestic markets and break any tendency to under value / appreciate risks. our concern was that an acute / unabated undervaluation of risks would create financial stability pressures, particularly in the real asset markets. while the risk of overhearing in the asset markets has since dissipated, we are not about to reverse that course of action yet. we will, however, consider 1 ) the actual and expected capital outflows that may result from the current global financial market rout and their impact on m3 growth, and, 2 ) carefully review the balance sheets / portfolios of the banking system to see if there is a need to adjust policy settings or tweak macroprudential measures. we will also, and more importantly, monitor inflation expectations. we have shared with you that for 2015, inflation is likely going to be lower than the government ’ s target band. even so, inflation is seen to move higher and into target range in 2016 and 2017. mindful therefore of the significant lags of monetary policy, we will be careful in making adjustments to policy settings going forward. now let ’ s