portfolio capital inflows, as reflected by unprecedentedly high levels of peso - denominated government bonds held by foreigners. there are no clear signs of financial disequilibria in mexico that might have arisen as a consequence of portfolio capital inflows, given the relative stability of indebtedness indicators such as the ratios of the current account balance, public - sector liabilities, and total external debt to gdp. additionally, growth in lending to the private sector was hardly affected by the capital inflows, as most were des - intermediated and, in any case, banks have shown prudent risk - taking while also complying with stringent regulatory requirements. nor has the mexican peso appreciated consistently, thereby harming export competitiveness. other factors, such as recurrent pessimism surrounding the u. s. economic recovery, have often pushed the peso in the opposite direction. by far, the financial asset price most influenced by capital inflows has been that of government bonds, as shown by substantial downward shifts in the mexican yield curve occurring since 2010 in tandem with u. s. yield - curve shifts. in turn, lower real long - term interest rates and foreign appetite for higher risk - adjusted returns provided favorable conditions for corporate financing in mexico and abroad. since may, market anticipation that the fed would soon start tapering its monetary stimulus has translated into lower prices for many financial assets, hitting those of emerging markets, previously considered darling destinations for international capital flows, especially hard. mexico ’ s financial adjustments to this change in market sentiment, though significant, have occurred in an orderly way. from may to mid - september of this year, ten - year government from june to september of this year, the median analysts ’ estimate of gdp growth for 2013 fell from 2. 8 to 1. 5 percent, while for 2014 it decreased only from 4. 0 to 3. 7 percent. see banco de mexico, encuesta sobre las expectativas de los especialistas en economia del sector privado, june and september. bis central bankers ’ speeches bond yields increased by more than 160 basis points, financial volatility widened considerably, and the mexican peso depreciated vs. the u. s. dollar. however, capital outflows were not extraordinary, foreign holdings of government bonds declined only modestly, and the foreign - exchange market remained highly liquid. the fed ’ s decision in september

of the national consumer price index. focused on its constitutionally mandated primary objective of price stability, the bank of mexico has set its policy interest rate taking into account, among other factors, how the cyclical phase of the economy may affect future inflation. hence, in the midst of the big contraction of 2009, the central bank lowered its policy interest rate from 8. 25 to 4. 50 percent, and in 2013 it has further reduced it to 3. 75 percent. in the last ten years, annual inflation has remained much lower than historical levels. this has been possible thanks to the support of a prudent fiscal stance, a prerequisite for the credibility of monetary policy in any country and, hence, something which should continue to be safeguarded in the future. in 2013, after a spike resulting from agricultural price shocks, annual inflation has recently fallen, reaching 3. 4 percent in september. as in previous years, medium - and long - term inflation expectations have remained relatively stable, though above the permanent target. in the future, several risks need to be assessed for maintaining inflation under control, including possible pressures from renewed financial volatility and new shocks from non - core price components. in any case, the governing board of the bank of mexico has repeatedly see, for example, oecd ( 2010 ), pisa 2009 at a glance, oecd publishing. bis central bankers ’ speeches stated that it will continue to be vigilant, acting in a timely way if shocks to relative prices could potentially contaminate inflation expectations and put convergence to the permanent inflation target at risk. concluding remarks to conclude, after a year of economic slowing, the 2013 third quarter has seen encouraging signs of improvement. the outlook for the mexican economy includes a recovery next year, although downside risks prevail, including an adverse external scenario and protracted difficulties for construction - sector restructuring. although domestic financial markets have operated in an orderly way in the face of changing international sentiment toward emerging economies, further bouts of volatility may pose some challenges to both inflation control and the strengthening of a recovery in the short term. finally, mexico ’ s current momentum in structural reform is highly promising, as both the changes approved and those under discussion seek to enhance productivity growth, a key element for underpinning greater long - term economic expansion. bis central bankers ’ speeches