your preferred instruments? we have clearly said that we are ready to do more, if this became necessary. the precise choice of instruments cannot be determined long in advance ; it is based on the specific circumstances. the asset purchase programme is sufficiently flexible for its size, composition and duration to be adapted if necessary. you have been pumping in money since march with large - scale purchases of government bonds. nevertheless, inflation in november only stood at around 0. 1 %. doesn ’ t that prove that your policy isn ’ t working? no, it ’ s working very well. in fact we were pleased to see how strongly our monetary policy has improved credit conditions. the impact on inflation however seems to be taking longer. some would say that greater patience is called for. we have already pushed back several times our expectations of when the inflation rate will reach just under 2 %. if we keep pushing them back, credibility will be put at risk. is this view shared by other members of the governing council? almost everyone on the ecb ’ s governing council thinks that the measures are working. but that doesn ’ t mean that everyone finds them good. there are two schools of thought among the critics on the council. some say they ’ re unnecessary because the economic situation isn ’ t that bad at all. for instance, they don ’ t regard the development in inflation expectations as being so dramatic. others say that, because of the special nature of a currency union, such asset purchases should only be used if we are in a deflationary situation. this point can be discussed at length. a large majority of the council members, which includes me, think that if you deal with that only in the extreme circumstances of deflation then it ’ s too late. it can only be corrected, the thinking goes, with great difficulty and requires much more effort. but doesn ’ t the ultra - loose monetary policy reduce the pressure on policymakers to undertake reforms? i am of course concerned about the rather hesitant pace of economic policy reform. many politicians are afraid of alarming the voters. that ’ s why they drag out reforms. monetary policy cannot solve the problems. but we cannot be inactive either, simply because the other side does not deliver. bis central bankers ’ speeches you have often used market - based inflation expectations to argue for monetary easing. are markets still a useful source of information for monetary policy? i never take only one indicator. and we don ’ t conduct monetary policy on the basis of market prices.

things main when i am faced with any situation, i follow three simple steps, “ my triple a's ” which will essentially be the outline of my remarks this afternoon : 1 ) appreciate the knowns – what is in my arsenal. 2 ) anticipate the unknowns – what are the risks that my arsenal can ’ t handle now. and finally, 3 ) act on the known, mindful that there are unknowns – or how can i be creative to address the potential impact of what could transpire when the knowns become entangled with the previously unknown? first, let ’ s appreciate the knowns. ladies and gentlemen, the events of the last couple of weeks notwithstanding, these are what we undeniably know : 1. the philippine fundamentals are intact. friends, this is not a cliche. it is not meant to be a bumper sticker. it is a statement that i hope you would not take lightly. on one hand, q1 2013 gdp grew at 7. 8 percent. divorcing from the fact that this was the highest q1 growth in the region ( better even than china ’ s ), this growth was supported by capital formation and public spending on infrastructure. in other words, the economy is being buoyed by expenditures that would cement the growth to a sustainable level. at the same time, year - todate average inflation of 3. 0 percent is at the lower end of our inflation target range. over the policy horizon, the bsp expects inflation to fall well - within the government ’ s official target range of 3 - 5 percent. clearly, the philippine fundamental story remains solid as we continue to enjoy the positive convergence of high growth and low inflation. bis central bankers ’ speeches 2. the philippine banking system is sound. again, this is not to be taken as a trite phrase. the banking system is growing steadily, creating a solid base for domestic retail funding. it is also more than adequately capitalized and the bsp does not foresee any major difficulties for the system to meet the requirements of the early adoption of the capital requirements of basel 3 in january 2014. 3. the philippine external position is robust. the gir at over $ 82b has been supported by strong current account receipts that are not easily affected by changes in the global operating environment. at about 12 months ’ worth of imports of goods and services, the gir provides a hearty cushion to external shocks. 4. the philippines ’ liquid