place today in the world. another significant aspect has to do with our foreign exchange policy. in recent weeks the peso has appreciated against the dollar, prompting some sectors to demand intervention by the central bank. i think that some clarification is in order. in the first place, i reaffirm the validity of a flexible exchange rate for the chilean economy. our economic history is full of examples in this area. so far, the scheme that has yielded the best results for economies similar to the chilean is a floating exchange rate regime. when policy makers sought to artificially control the value of our currency, imbalances were generated that ended up being very costly for the country. the adoption of exchange rate flexibility in 1999 has allowed us to wade subsequent complex moments. the worst was the world recession of 2009, when the floating exchange rate policy allowed accommodating the sharp changes in the external scenario, both via the depreciation of the peso and an active monetary policy to stabilize demand. in turn, the creation of instruments designed to shield the economy from short - run fluctuations in this variable, permits to bound its effects on hedged agents. certainly more can be achieved in this sense, but there have been important advances. still, the central bank has always reserved the right to intervene the forex market. we have done it four times since 1999. however, this type of measures, which are used only exceptionally, must be based on solid grounds. in the past, these interventions have been justified by the central bank ’ s international liquidity position and by obvious and persistent deviations of the real exchange rate from its medium - to long - term fundamentals. in the present circumstances, it is not evident that these criteria apply. in the first place, it is important to note that the current level of the real exchange rate, while low compared to some months ago and also with respect to the average of the last fifteen to twenty years, is within the range believed to reflect its underlying fundamentals. it is certainly in the lower part of the range, but still consistent with its long - term fundamentals ( figure i ). as i said, the elements behind the peso appreciation are manifold. on one hand there is the favorable level of our terms of trade. despite the downturn of the developed world and the deceleration in china, commodity prices have remained high, especially for copper. this has driven today ’ s terms of trade, despite a drop this year,

will be higher than assumed in june, because of supply - side problems and increasing geopolitical risks in the middle east. on top of this is – also because of supply - side problems – the increase in food prices in the world markets, especially for grains. the copper price projection does not change from june. finally, despite the observed calm, the baseline scenario considers new episodes of stress in global financial markets, similar of those of the past year. this, because of the events foreseen for the coming months and the difficulties of advancing towards a more long - lasting solution to the problems in the eurozone ( table 1 ). in chile, the greatest news is stronger - than - expected growth in output and demand in the second quarter of the year. output owes its dynamism to sectors linked to domestic demand, such as construction, trade and services. the better result of the manufacturing industry is also worth noting, which, although growing less than aggregate gdp, still exceeded expectations, also driven by the lines associated with demand, especially investment and specific export - oriented activities. on the expenditures side, inventory accumulation intensified with respect to previous months. ( figure iii ). this seems to respond to an attempt to rebuild inventory levels after the reduction of late 2011 and that, at the time, was linked to the expected negative effects of the external scenario on final sales. also worth noting was the renewed strength of consumption and gross fixed capital formation. consumption continues to rely on the evolution of the labor market and fairly stable financial conditions. regarding investment, the contribution of construction and infrastructure works stands out, relating mainly to mining and energy projects, but also to a strengthened real - estate sector, which reflects on the performance of commercial loans. the behavior of output, especially of sectors other than natural resources, and domestic demand intensified the utilization of installed capacity. although y - o - y growth in employment and nominal wages has dropped, the labor market remains tight ( figure iv ). however, the increased domestic demand pressure, especially from investment, together with lower copper prices compared with 2011, have led to a widening of the current account deficit. in the moving year ending the second quarter of 2012 this deficit rose to 2. 7 % of gdp, from 1. 3 % at the close of 2011. in the past few months, y - o - y inflation has continued on a downward path, influenced by fuel prices. core inflation, which excludes foodstuffs and energy ( cpiefe ) has stabilized