to undermine the economic progress achieved over many decades of efforts. at the same time, the crisis has given rise to deep question marks about our understanding of economics, in general, and of monetary policy in particular. for instance, it has become increasingly evident that while the possibility of implementing an independent monetary policy is greater under exchange rate flexibility, floating implies costs that set limits on the degree of independence a central bank can enjoy. furthermore, doubts have emerged regarding the adequate monetary policy framework under current circumstances, the merits of intervention in the foreign exchange market, the role to be played by monetary policy in the preservation of financial stability, and the use of capital controls as a means to counter the adverse effects of volatile capital flows, among others. how has monetary policy in mexico responded to these challenges? at present, the implementation of monetary policy in mexico rests on four pillars. first, an independent central bank with the mandate to focus on achieving a low and stable rate of inflation. both features, as well as the key provision that no authority will be able to order the banco de mexico to provide financing, are stipulated at the constitutional level. second, an inflation targeting regime, with a specific target for headline cpi annual inflation of 3 percent within a variability interval of + / - 1 percent, and where convergence to the target is sought at the lowest possible cost in terms of economic activity. third, a commitment with transparency and clear communication of actions and goals of the central bank. fourth, awareness that under a situation of high uncertainty, there are clear merits of an approach emphasizing prudence and readiness to act on a preventive basis whenever this is considered convenient. naturally, an efficient achievement of the macroeconomic objectives requires a balanced policy approach. it may be useful to note, for instance, that the global financial crisis has evidenced the costs derived from a policy response that relies excessively on monetary policy. in the case of mexico, two elements are central in this regard : the implementation of measures aimed at fostering an orderly functioning of the foreign exchange market in a context of sharp depreciation and high volatility of the peso - dollar rate. with the support of a comfortable level of international reserves and a flexible credit line with the imf, actions taken by the foreign exchange commission2 have varied according to circumstances, and have included pre - announced or sporadic discretionary interventions in the foreign exchange market and, more recently, the introduction of a new mechanism for the hedging of foreign exchange risk for an amount

prices. 5 thus, from late 2015 to march 2017, the reference rate has been increased on 8 occasions, to a level of 6. 5 percent. the monetary policy framework adopted in mexico in recent years has been fundamental to preserve macroeconomic stability in a context of highly volatile capital flows and severe external shocks, such as the sharp decline in oil prices, bouts of uncertainty in international financial markets linked to geopolitical or other factors, the increase in interest rates in the united states and the results of the electoral process in that country. furthermore, together with micro - and macroprudential measures implemented over the course of many years, it has contributed to the preservation of financial stability. the annual rate of growth of the cpi recorded figures below 3 percent during the period may 2015september 2016. headline inflation, as measured by the cpi, increased to 5. 29 percent at annual rate in the first fortnight of march 2017. naturally, many challenges remain. the most evident one in the short term is to ensure that the recent increase in inflation does not affect medium - and long - term inflation expectations and the process of price formation in the economy. in this respect, it is worth to note that the fact that the impact of the most recent shocks on prices has concentrated mostly on short - term inflation expectations, with a sharp downturn in price growth anticipated since early 2018, attests to the merits of the actions undertaken thus far and in general to the credibility of monetary policy. on the other hand, it is evident that monetary policy in mexico will continue to be implemented under very uncertain and changing conditions. therefore, the central bank will need to be ready to adapt the monetary policy stance as needed to ensure an efficient accomplishment of its mandate.