ief ) our financial stability report ( ief ) discloses, twice a year ( in june and december ), those recent macroeconomic and financial developments that might influence the financial stability of the chilean economy. let me now briefly describe some of the main subjects covered in this last issue. the same scenarios for external risk i just described are analyzed in the ief. from the standpoint of financial stability, we conclude that as the process of monetary policy normalization in the united states advances, financial volatility episodes may follow. the expansionary policies have helped to shape the current environment of low risk premiums and low volatility. thus, any surprises in the evolution of the us monetary policy could affect bis central bankers ’ speeches financial conditions – like they did in may of 2013 –, raising credit costs in world markets, reversing portfolio flows and depreciating emerging - country currencies against the us dollar. the beginning of a new cycle of quantitative expansion by the european central bank, plus similar announcements by the bank of japan, might reduce the likelihood and impact of these volatility episodes, depending on how these unconventional policies ultimately reflect in global lending conditions. a different risk has to do with the slowdown of emerging economies resulting in reduced capital flows. this because their assets become less attractive, all the more so in latin america. a scenario in which the recent drop in commodity prices is prolonged or intensified, or where doubts about china ’ s performance resurge strongly, might trigger this kind of event. the scene may become more complex if at the same time long - term rates go up in the us, increasing the cost of external funding. it should also be considered that an increase in the cost of external financing could put upward pressure on local long - term interest rates. the decline in external and domestic long - term interest rates has motivated bond issues in both markets and local demand for type - 3 mutual funds. while local rates have not responded only to changes in external rates – reflecting also the actions of local monetary policy –, a rise in international interest rates could result in increased costs of corporate financing. at the same time, it could generate portfolio adjustments by the agents involved, helping in the interest rate hike and causing greater volatility in the markets. as of the second quarter, chile ’ s corporate financial sector showed no material change from end - of - 2013, although debt is high and profits are low by historical standards ( figure 10 ). all in

especially important in a context where the state of the world economy seems less robust than just a few months ago, and where the risks facing emerging economies have increased. monetary policy has already added a very strong impulse, the peso depreciation is contributing and will continue to do so, and congress has approved a fiscal budget that considers a significant increase in public investment. we, as the central bank, reiterate that we will conduct monetary policy to ensure that inflation stands at 3 percent over the policy horizon, and we insist that every participant in the financial system needs to thoroughly evaluate their borrowing and lending decisions. at the bis central bankers ’ speeches same time, we will continue to contribute to chile ’ s development and welfare with what is our duty, namely the stability of our currency and the normal functioning of internal and external payments. thank you. figure 1 inflation and expectations ( annual change, percent ) jul. headline jul. expectations at december 2014 ( ees ) ( * ) ( * ) november and december calculations based on expected monthly variation as reflected in the ees. sources : central bank of chile and national statistics institute ( ine ). figure 2 domestic demand components ( annual change, percent ) - 10 - 20 - 20 - 40 private consumption gross fixed capital formation durables consumption gfcf machinery & equipment source : central bank of chile. bis central bankers ’ speeches figure 3 current account ( * ) ( percent of gdp ) - 3 - 6 - 9 saving investment current account ( * ) accumulated in one moving year. source : central bank of chile. figure 4 demand indicators ( * ) ( annual change, percent ) - 20 - 40 imports of consumer goods retail sales ( ine ) imports of capital goods ( * ) quarterly moving average. sources : central bank of chile and national statistics institute ( ine ). bis central bankers ’ speeches figure 5 business and consumer expectations ( * ) ( original series ) imce * * ex mining ipec * * * ( * ) value above ( below ) 50 points denotes optimism ( pessimism ). * * monthly index of business confidence. * * * economic perception index ( consumer confidence ). sources : adimark and icare / universidad adolfo ibanez. table 1 domestic scenario ( annual change, percent ) 2014 ( f ) jun. 14 report sep. 14 report 2. 5 - 3. 5 1. 75 - 2. 25 dec. 14 report 2015 ( f ) sep. 14 report dec. 14 report