markets have had very limited effects on the chilean economy ( figure 6 ). figure 6 : exchange rates ( local currency units per us dollar, percent change ) may 2006 argentina australia brazil chile eurozone hungary indonesia japan malaysia mexico new zealand philippines poland russia south africa south korea turkey united kingdom 1, 5 5, 8 8, 0 7, 3 1, 6 7, 0 6, 6 5, 2 2, 9 5, 4 3, 3 4, 0 6, 1 0, 1 20, 3 3, 2 20, 3 2, 3 february 2007 august 2007 0, 0 3, 0 2, 6 1, 0 0, 7 0, 7 2, 0 - 4, 2 0, 7 1, 0 5, 2 1, 0 0, 6 0, 4 5, 9 1, 2 5, 1 2, 2 1, 7 argentina 10, 3 australia 8, 8 brazil 1, 9 chile 2, 4 eurozone 5, 1 hungary 3, 3 indonesia - 6, 3 japan 2, 3 malaysia 3, 1 mexico 13, 6 new zealand 4, 1 philippines 1, 8 poland 1, 4 russia 6, 8 south africa 2, 9 south korea 7, 0 turkey 3, 4 united kingdom ( 1 ) shows variation between 10 may and 27 june. ( 2 ) shows variation between 26 february and 5 march. ( 3 ) shows variation between 19 july and 17 august. source : bloomberg. long - term interest rates ( variation in basis points ) may 2006 argentina australia brazil chile eurozone hungary indonesia japan malaysia mexico new zealand philippines poland russia south africa south korea turkey united kingdom usa february 2007 - 4 - 9 - 72 - 11 - 679 - - 18 - 7 - 8 - 4 - 3 - 6 - 12 - - 5 - 75 - 9 - 13 august 2007 382 argentina - 36 australia 90 brazil - 8 chile - 26 eurozone 53 hungary 112 indonesia - 33 japan 23 malaysia 27 mexico - 60 new zealand - - philippines 12 poland 26 russia 3 south africa - - south korea 161 turkey - 34 united kingdom - 33 usa ( 1 ) shows variation between 10 may and 27 june. ( 2 ) shows variation between 26 february and 5 march. ( 3 ) shows variation between 19 july and 17 august. source : bloomberg. something very simple reflects the proper functioning of our economy : in a moment where the world has seen a major retraction of credit operations, in chile companies have continued to place long - term bonds in the private market.

. it also the efficacy of this monetary policy over the 2000s is evident ( figure 3 ). figure 3 : deviation of inflation from its target source : central bank of chile. the international financial turmoil regarding recent developments in world financial markets, the first thing to do is recognize that the adjustment they are undergoing is part of an overdue normalization process in credit risk spreads for a large variety of securities, and volatility levels of the riskier assets prices ( figure 4 ). in fact, for some time our financial stability and monetary policy reports have stated that a correction in risk premiums and an increase in market volatility were to be expected, because the good conditions would not last indefinitely, in particular given the monetary policy normalization period in the main economies that was already prolonging for some years. it is very likely that today we are witnessing precisely that correction in risk valuation and volatility. figure 4 : sovereign risk premiums and volatility ( basis points ) ( 1 ) risk premium on developed market corporate bonds with less than investment grade risk ratings ( ccc to bb ), according to standard and poor ’ s. ( 2 ) considers implicit volatility on option from us s & p 500 index. sources : bloomberg and jp morgan chase. however, even if this is a normalization process, the dynamics, deepness and extension of market adjustment are difficult to foresee. as with earlier episodes of sharp increases in risk premiums and market volatility, some market segments and specific agents have found themselves unexpectedly in weaker financial positions, which generate tensions and doubts about particular entities ’ risk vis - a - vis their counterparties. in this sense, beyond the slow recovery of the past week, the risk remains being a worsening of the international financial scenario if this correction deepens, with more severe implications on the functioning of the principal markets and global financial intermediaries and, ultimately, on world economic activity. although this correction was triggered by the deterioration of sub - prime mortgage debtors ’ payment capacity in the us, what is surprising is that the exposure to such deterioration has spread to financial entities elsewhere, causing tension in the trade securities market and even in the global interbank market. these mortgages were originated by companies specializing in mortgage loans ; then they were sold to institutions that packed them as bonds collateralized by payment flows associated to these mortgages, to higher quality mortgages and to other credits. these bonds are known as abs. with the increase