policy framework addressing systemic risk enhanced international coordination. the global nature of the crisis required a global response and new international institutions to coordinate the regulation of the financial sector. at the global level we saw the creation of the financial stability board and the intensification of the work at the basel committee ( bcbs ). in the case of the european union, we have taken an important step towards financial integration, most notably with the activation of the banking union, currently comprising two elements : the single supervisory mechanism and the single resolution mechanism. there is a third necessary pillar, the european deposit insurance scheme, which is still under political negotiations. iii. four broad challenges for central banks ahead : 1. are we under a “ new normal ” macroeconomic environment for the macroeconomy and what does it mean for monetary policy? new normal? debate about whether or not we are facing a new structural reality of secular stagnation that defines a “ new normal ” for the macroeconomy, characterised by low growth, low inflation and low real and nominal interest rates. most estimates suggest that the natural interest rate ( i. e. the real interest rate consistent with inflation stability and output at its natural level ) is now at historically low, possibly negative, levels. some possible explanatory factors are of a transitory nature ( such as the still - ongoing deleveraging processes ), while others are more structural ( i. e. low productivity growth and demographic factors ). we have to deepen our analysis further in order to have a full grasp of this “ new normal ” reality. implications for monetary policy : new conventional? the question that arises is whether the “ new normal ” should lead to a “ new conventional ” for monetary policy. indeed, inflation and real interest rates are likely to persist at a low level in the future, and therefore nominal interest rates will also be lower and hence closer to their effective lower bound, limiting their effectiveness as a monetary policy instrument, which will possibly lead to balance sheet management as a permanent policy. there are still no conclusive debates about balance sheet management, including on its marginal effectiveness, the optimal size of the balance sheet and the repercussions it could involve in terms of financial stability. again, in this area, we need further analysis. 4 / 6 once the conditions for it are met, the exit strategy from the accommodative policies will require gradualism and predictability. as the recovery gathers speed, and as long as this

of independent monetary policy to offset macroeconomic shocks. together, these two lessons have taught us that it is prudent to use a wide set of available policy instruments to achieve low and stable inflation, prevent undue volatility in the exchange rate, and maintain broad financial stability. our policy toolkit has till now encompassed, in addition to the policy rate and bank reserve requirements, mechanisms to better understand the nature of the flows, international reserve accumulation and the associated liquidity management, financial and foreign exchange reforms, and bis central bankers ’ speeches macroprudential regulations. by employing this strategy, the bsp has thus far been able to keep inflation in check while containing the risks associated with strong capital inflows. a third lesson we have learned is that policy responses must be oriented towards preventing a build - up of system - wide risks that may be brewing underneath the growth momentum. we need to keep an eye on the broader objective of maintaining financial stability. the regulator can no longer simply look at transactional risks, but we need to also consider how these individual transactions impact on other financial transactions. our commitments to the basel 3 accord exemplify this belief as we have placed greater scrutiny on linkages between our financial institutions and the non - banking corporate sector. this now brings us full circle. for financial stability to translate fully to solid and durable economic growth, the bsp must continue to enable different stakeholders to participate confidently in the financial system. this is where our continuing reform initiatives toward greater consumer protection come in. the fourth lesson we can draw from recent experience is that consumer protection complements financial stability. these twin goals ultimately help address the expanding needs of the growing economy. i have given you the lay of the land, so to speak … clearly, the coming months are likely to continue to prove to be challenging for the philippines … as such, our strategy in addressing potential threats to the economy continues to revolve around using a broad - based policy tool kit that aims to bolster our domestic sources of resilience. ladies and gentlemen, i have noted that many of you ( the patient side of the summit ) have been listening intently … but for the “ other side ” of the summit, you may anxiously ask, what do all these mean for the economic variables that matter to us? quickly, three guideposts : 1. on the policy rate – we continue to see the average inflation rate falling within the lower half of the target range. with this relatively favorable inflation outlook