inflation. additionally, an accelerating rise in the producer price index also reveals an impact from peso weakening. see bis ( 2014 ). “ triennial central bank survey of foreign exchange and derivatives market activity in 2013, ” detailed tables. see shcp ( 2016 ). informes sobre la situacion economica, las finanzas publicas y la deuda publica, segundo trimestre de 2016. see bis ( 2016 ). bis statistical bulletin, june, table f2. 3. bis central bankers ’ speeches medium - term inflation expectations, as measured by analysts ’ surveys, have remained relatively stable, albeit above the target. market - derived expectations appear to show a recent spike. 8 in this context, monetary policy has been preemptive, with interest rate hikes seeking to avert deviations of inflation expectations and to anchor them on the target, particularly in the face of significant peso depreciation. the resulting flattening of the yield curve seems to reflect confidence that inflation will continue to be contained. it is worth emphasizing that the bank of mexico does not target any level of the exchange rate. its primary objective is maintaining low inflation, and mexico adheres to a freely floating exchange - rate regime. this does not mean that movements in the exchange rate have no impact on inflation. in fact, as mentioned, moderate pass - through has occurred from the exchange rate to consumer prices, concentrated in durable goods. but this may change, and monetary policy should remain vigilant. some risks to the consolidation of convergence of inflation to the 3 percent permanent target prevail. the most notable danger is more weakening of the peso with a generalized impact on prices, knocking inflation expectations off track. also, rises in noncore prices could accelerate, returning to historic rates, possibly producing second - round price effects. finally, given uncertainty on the level of potential gdp, aggregate demand pressures could surface. conclusions over the course of many years, mexico and the united states have benefited from increased integration, both cultural and economic. mexican economic activity, however, has recently decelerated and confronts downside risks, among them, the possibility that the u. s. industrial sector ’ s performance will turn out to be softer than anticipated. other dangers are weaker consumer and producer confidence, a steeper - than - expected fall in oil output, and possibly more volatile financial markets. the latter might squelch financing for the government and private firms. greater risk ave

be applied in this context, too : there should be no explicit or implicit government guarantees regarding the solvency of the respective banking system ; temporary liquidity crises should be resolved, wherever possible, before government intervention becomes necessary ; the private sector should be comprehensively involved both in crisis management and in loss - sharing. • international support measures must always remain an exception and never become the rule. under no circumstances should private investors be able to rely on public bodies to assume their losses in the end. instead, i believe it would be desirable to create an international liquidity safeguarding fund made up of the major global players, which would also have the most to gain from a largely deregulated and sound financial system. this will not be an easy undertaking, since there seem to be few incentives for a bank to assume other institutions'risks. nevertheless this road should be taken in order to strengthen market discipline. i believe that membership in a club comprising the major global players would be a special quality which could actually become attractive for those institutions. besides, it seems quite conceivable that banking supervision might be willing to grant those institutions more selfregulatory powers. the case of the hedge funds ltcm proves that the private sector can find solutions without having recourse to public funds. at that time, the federal reserve bank of new york was only acting as an intermediary to bring national and international financial institutions together, which then provided the necessary funds. the same principle applies both nationally and internationally : moral hazard problems can only be prevented by emphasising and requiring that responsibility be taken by financial market participants, and by limiting the intervention of public bodies. avoiding moral hazard will also increase the stability of the system and improve crisis management. * * *