. the bsp will activate these tools as appropriate. in the context of pursuing our price stability mandate, the bsp will continue to fine - tune its implementation framework for monetary policy to make it even more market - oriented. we have already started with the deployment of the interest rate corridor ( irc ) system. over time, the irc is expected to aid in advancing the development of the domestic money and capital markets based on greater reliance on the use of market - friendly instruments. the irc will further align our open market operations with liquidity needs of the market, strengthening monetary policy transmission channels. in terms of banking supervision, we continue to review and align our financial regulations and policies with international standards to improve risk management as well as ensure the competitiveness of our banks in view of asean integration … we intend to further enhance our macro - financial surveillance capability by, among others, improving coordination and cooperation with other government agencies and regulators … we are also working closely with other government agencies and private sector stakeholders to accelerate the development of the domestic debt market, including the development of the necessary financial market infrastructures that provide orderly trading, clearing, and settlement of the full range of financial transactions. earlier last year, the monetary board approved the ninth wave of liberalization of foreign exchange rules. this is to encourage the public to transact their fx needs with banks, enhance market efficiency, and improve data capture. there are more ambitious fx reforms to come. we also continue to enhance and update our financial sector regulations and policies to bring our 4 / 5 bis central bankers'speeches financial system at par with international standards … through the financial stability coordination council committee ( fscc ) chaired by the bsp, macro - prudential surveillance of the financial system is conducted on an on - going basis to enable early detection of any incipient signs of instability. our surveillance toolkit consists of a suite of quantitative models that attempt to address one or more aspects of systemic risks. this includes, among others : early warning systems ( ews ) that employ aggregate information from various sectors to generate early warning signs of systemic stress and at the same time, allow us to identify potential build - up of stress in specific sectors of the economy. stress tests that measure the resilience of the domestic financial system to various stress factors, including shocks from macroeconomic and financial variables like gdp, liquidity, and interest rates. stability indicators that potentially contain more information on the changes in domestic macro - financial conditions such as philippine

banking system, and prudent fiscal position will continue to provide fundamental support to the peso. solid macroeconomic fundamentals the developments we have seen thus far in 2017 point to overall economic resilience. economic performance in terms of gdp growth has been sustained. real gdp rose by 6. 5 percent in the second quarter of 2017. we are one of the fastest growing economies in asia … stronger economic activity is expected in the second half of the year due to the robust growth in the services sector and improved external trade conditions …. private consumption demand is expected to remain firm, aided mainly by sustained remittance inflows and low inflation. as more government infrastructure programs get underway, the positive spillover effects on 1 / 5 bis central bankers'speeches private capital formation will contribute to economic growth over the medium term … the economy is on track toward achieving the government ’ s full - year target of 6. 5 to 7. 5 percent … this extends our streak of uninterrupted growth to 74 consecutive quarters! … over the past five years, the economy has expanded by an average of more than 6 percent annually, a feat not accomplished since the 1970s. latest data shows that domestic liquidity conditions are ample to finance the requirements of the growing economy. domestic liquidity ( m3 ) grew by 13. 3 percent year - on - year in june 2017, faster than the 11 percent expansion in the previous month. this expansion in economic activity was sustained without fuelling inflationary pressures … although headline inflation rose slightly to 2. 8 percent in july ( from 2. 7 percent in june ), the yearto - date average inflation rate of 3. 1 percent. this is fully in line with our 2017 forecast. this means we will once again be solidly on target. indeed, our latest baseline forecasts indicate that inflation is likely to settle near the midpoint of the government ’ s 2 - 4 percent target range over the 2017 to 2019 forecast horizon. equally important, our banking sector continues to be fundamentally sound. the many reforms put in place by the bsp, along with the banks ’ significantly improved risk governance have resulted in clear improvements in the quality of philippine banks ’ assets and loan portfolios as well as in strong capitalization. these indicate superior ability to absorb risks … strong balance sheets have allowed bank lending activity to remain upbeat as it continues to flow into the country ’ s productive sectors such as real estate ; power and utilities ; manufacturing ; wholesale and retail trade ; and