should take advantage of the potential of both fortifying fundamentals and managing risks in order to waterproof against financial storms. the mexican economy mexico ’ s economy has weathered volatility relatively well during the last two years. for example, currency depreciation has been lower than that observed in many other emerging economies. orderly market conditions have prevailed, with bid - ask spreads remaining tight and operating volumes high. this strength likely reflects a set of sound economic policies, including moderate and relatively stable public debt ratios, low inflation and a well - capitalized and liquid banking system. furthermore, mexico ’ s flexible exchange rate regime has served as a buffer against turbulence, become a mechanism of self - discipline for authorities and market participants, and resulted in less pass - through to inflation. the mexican peso sees more trade than many advanced - nation currencies, and it is the most traded among those of emerging economies. 4 additionally, the local debt market has become attractive to foreign holders, and this is beginning to be the case for foreign issuers as well. foreign holdings of local ‐ currency government bonds, as a percentage of total domestic public debt outstanding, have run at around 37 percent. this share has remained relatively stable in the wake of brusque market reactions to talk of eventual tapering of federal reserve asset purchases last year and so far continues to do so. a high concentration of these holdings in long tranches of the yield curve provides some basis for believing that many investors see their positions as a long - term bet. in other words, perhaps they are here to stay. however, as we are in unchartered waters, we cannot rule out the possibility of significant downward adjustments in these holdings, amid changing market sentiment or shrinking carry - trade opportunities as u. s. monetary normalization proceeds, among other possible causes. after a year and a half of weakness, mexico ’ s economy started to rebound during 2014, notwithstanding some lower growth in the third quarter reflecting, in part, temporary factors. the main impulse has come from consolidation of u. s. economic activity and associated higher demand for mexican exports. domestic spending has also gained some steam, mainly through private investment and, to a lesser extent, from consumption. consumer confidence has been at somewhat low levels but appears on the mend according to evidence from november data. the growth outlook is one of gradual improvement. a close economic relationship with the united states is a positive factor for mexico. before the u. s. recovery took off

, it was a see bank for international settlements ( 2013 ), triennial central bank survey of foreign exchange and derivatives market activity in 2013, april. bis central bankers ’ speeches disadvantage vis - a - vis many commodity - exporting countries, which enjoyed the benefits of high and ascending commodity prices. the tables, however, now appear to have turned. 5 monetary policy in the last two years became more accommodative in the context of lower economic growth. rate cuts from march 2013 to june 2014 totaled 150 basis points, and the policy interest rate is currently at 3 percent. since july 2014, annual inflation has surpassed the upper limit of the variability interval around the permanent 3 percent target, due mainly to transitory factors. pressures from the effect over the year of tax hikes, and from the noncore component of the national consumer price index, especially livestock prices, have made themselves felt. inflation is expected to be lower in 2015, on a path of convergence to the permanent target. this development would be extremely timely as it would contribute to increasing the economy ’ s resilience to a possibly more difficult international financial environment. but convergence implies not only achieving but also maintaining the target level. upside inflation risks should be carefully monitored. one may come from substantial hikes in minimum wages. others are a prolonged weaker currency due in part to financial market stress, and renewed pressures from noncore inflation. analysts ’ inflation expectations for all periods, although stable, remain above the bank of mexico ’ s permanent target. concluding remarks approaching monetary normalization in advanced countries will make life more complicated for fund managers, especially in light of very low global interest rates, historical minimums for bond spreads, and record highs in many stock markets. beset by heightened uncertainty, emerging markets will see added challenges. portfolio weights are already heavy with their assets, a stumbling eurozone recovery could derail some of them, and lower growth in china could further dent demand for commodities, on which many emerging economies depend as exporters. financial authorities need to work hard to underpin macroeconomic fundamentals by focusing on how to strengthen fiscal and monetary policies, as well as regulatory and supervisory frameworks in the financial system. they should also remain fully alert to financial risks and keep stability at the fore of their concerns. after some fragility, mexico ’ s economy appears to be on an upturn, pulled by a stronger recovery in the united states, as well as more momentum from domestic demand. the expected approach of inflation