of an upward trend for inflation even in the absence of further shocks ; risks for inflation and its expectations deriving from a sharp depreciation of the exchange rate ; the possibility of a higher than anticipated level for the peso - dollar rate for a significant period ; potential nonlinear effects of the exchange rate on prices ; and the adverse signaling that could result from the absence of decisive action in the face of evident perils for inflation. naturally, adjustment of the monetary policy stance has been considered fundamental to fulfill the constitutional mandate of the banco de mexico, based on the premise that maintaining a low and stable inflation rate represents the best contribution of the central bank to economic growth. in spite of the accumulated tightening of the monetary policy stance in mexico since late last year, the impact of the higher target for the reference rate on domestic economic activity has been alleviated by a flattening of the yield curve. interest rate increases have been concentrated on the short end of the curve, while rates for longer maturities have actually declined. looking forward, it is difficult to evaluate the possible trend of the monetary policy rate in mexico in the very short term, especially in view that some of the factors that have recently affected the most the peso - dollar rate, and particularly the electoral process in the united states, could dissipate or accentuate in coming weeks. looking beyond this special period, against the background of an output gap that is expected to remain negative throughout next year, interest rates in mexico are likely to be significantly affected by the evolution of interest rates in the united states. markets continue to anticipate a further tightening of the monetary policy stance in that country, although at a very gradual pace. to the extent that it responds to the need to contain inflation and maximize employment, this should be good news for the world and mexico ’ s economies. furthermore, as the experience with the increase of the federal funds rate in late 2015 shows, if well communicated, it need not be a source of disruption in international financial markets. however, for the reasons i underlined above, should conditions similar to those prevailing at present persist, an increase in the federal funds rate without a monetary policy response in mexico would give rise to major risks. more generally, in accordance with the central bank ’ s mandate, monetary policy in mexico will continue to focus on the attainment of the inflation target. this implies a careful monitoring of all determinants of inflation and its medium - to long - term expectations. however, special attention

stresses in the funding markets. government support for the banking system since last autumn, governments have supported the banking system through various measures : by injecting new capital, by providing guarantees on new bank debt issuance and, more recently, through asset relief schemes ( involving the removal of impaired assets from the banks ’ balance sheets or the provision of guarantees to limit the valuation losses of such assets ). these measures have succeeded in stabilising the banking system, by reducing systemic risks and strengthening confidence. the support provided has been substantial, for example banks in the euro area have received 115 billion euro of capital injection from governments ( of which 75 billion euro were provided to the major banking groups ) and 217 billion euro of funding guarantees. however, these bank support measures are taking some time to implement. so far, only one third of the commitments for capital injections have been used and a smaller fraction – about 12 % – of the commitments to guarantee new bank debt have been called upon. the participation of banks in the debt guarantee schemes is voluntary, and the very limited use of these guarantees may reflect a decline in the demand for credit and / or the desire of the banks to continue deleveraging their balance sheets. it is, however, important to ensure that other constraining factors are addressed, for example that the disincentives associated with the provision or pricing of these debt guarantees are promptly addressed, so as to help banks finance additional lending to the private sector. possible further measures a relevant question is whether the tight financing conditions and the continuing stresses on the banking system require further measures by governments and central banks in order to help revive the extension of bank credit to the economy. the answer regarding the need and the nature of potential further measures depends on the causes or determinants of the prevailing financing conditions and on the structure of the financial system. to the extent that ( i ) financial market stresses, ( ii ) the deleveraging process, ( iii ) uncertainty about the economic outlook and about potential further bank losses, and ( iv ) low confidence impair the functioning of the credit and bank funding markets and the transmission of the effects of monetary policy, “ non - standard ” measures aimed at reducing funding uncertainty and enhancing the functioning of the credit market and, consequently, the monetary policy transmission mechanism, may represent possible courses of action. in the euro area, because the banking system has a more dominant role in the financing of the private sector than the capital market, compared with other economies, the