, the bsp will continue to work actively with other government agencies and the private sector for the completion of critical market infrastructure to enhance system integrity and overall market confidence. we will continue to push for the passage of key legislations intended to accelerate the development of the domestic capital market. in particular, we shall push for the implementation of a centralized credit information bureau to improve the availability and the quality of financial information to investors, expand private sector access to credit, and minimize exposure to risks of financial intermediaries. on the basis of these policy directions, and looking ahead, the outlook for the monetary, external and banking sectors continues to be favorable. average inflation fell below the target of 4 - 5 percent in 2007. it is expected to settle within the target in 2008 of 4 percent ± 1 percentage point. the external payments position is expected to remain a source of strength for the economy over the near term. dollar inflows from remittances and foreign investments are expected to remain robust and will continue to provide support for the peso. this should enable us to further build up our cushion of international reserves. on the banking system, we expect to see a further expansion of bank assets and capitalization, as well as a further improvement in bank asset quality. these are the broad strokes of the economic picture of the year just past and for 2008. i am now ready for a discussion of specific questions and issues of interest to you.

. altunbas, l. gambacorta and d. marques, “ securitisation and the bank lending channel ”, ecb working papers series, forthcoming. to securitize existing loans ultimately depend on their perceived creditworthiness, which is influenced by cyclical developments and also, through the price of collateral, by monetary policy changes. 7 funding conditions, in turn, will be reflected in the cost and availability of credit to final borrowers. the recent sharp tightening of lending standards to a broad range of u. s. mortgage borrowers is a serious reminder of this possibility. • second, and more fundamentally, the recent financial turmoil indicates that we need a better understanding of the “ originate and distribute ” model of financial intermediation and its implications for monetary policy transmission. this model allows greater risk diversification and helps ease credit constraints in normal times. however, it may also induce agents to take on more debt and greater exposure – direct or indirect – to highly complex financial instruments. furthermore, there is a lack of market - determined prices for certain structured finance products, and the evaluation models used by rating agencies have shown limited reliability in taking into account tail risk. these changes can make the system more vulnerable to sudden increases in uncertainty or shifts in market sentiment, that may result in a widening of credit spreads and possibly in credit rationing. in these circumstances, the effects of monetary policy via the value of collateral can be amplified or become less predictable. • third, it is important to assess whether household balance sheets in the euro - area are really becoming more similar to those in the united states, where households ’ portfolios are traditionally more oriented to risky instruments, mortgage markets are more sophisticated and the recourse to consumer credit and credit cards is much more widespread. the more this were the case, the more the euro - area transmission mechanism would start resembling that of the united states, where monetary policy effects via consumption ( and residential construction ) have traditionally played a more prominent role than in continental europe. 3. how is the conduct of monetary policy affected? the above mentioned trends may have important consequences for the way monetary policy is conducted in practice : • monetary policy is conducted in a world characterised – even more than in the past – by a high degree of financial complexity and widespread non - linearities : while overall risk may be on average lower in normal times, due to greater diversification, it can increase sharply when large systemic shocks occur, that determine a sudden rise