addition, and to reduce tensions in foreign exchange market liquidity, the bank has auctioned off one billion us dollars under the foreign currency swap modality where offers are made in terms of libor plus a premium. at first, this program considers two more auctions for a combined total amount of one billion us dollars. to sterilize the monetary effects of these operations and prevent effects on peso liquidity, repo window operations are being offered at the monetary policy rate at 28 days. in this aspect, it is necessary to contextualize the chilean banking sector foreign indebtedness, especially the short - run component. banking sector debt amounting to nearly 2. 7 billion us dollars is maturing in the last quarter of this year, that is, less even than the reserves accumulated from april to date. meanwhile, the total external debt of the banking sector overall amounts to some 13 billion dollars, the equivalent to 60 % of total reserves. the level of central bank reserves is sufficient to back the normal operation of the financial system, in particular its needs for foreign funding. the chilean financial system must be capable of securing funds in international markets, a feature it has displayed for several years already. however, should access to foreign funds and liquidity complicate further, the central bank is well prepared and equipped to take decisive action. precisely the levels of international reserves can do the job. international reserve management to administer international reserves, the central bank has separate responsibilities at various hierarchical levels, complying with international recommendations on the matter, and which have been evaluated by the imf. in addition, internal and independent auditors perform periodical audits to review the bank ’ s investment procedures. an internal middle office is in charge of monitoring compliance with the investment guidelines and parameters defined by the board, on a daily basis. this year, the investment policy for internally managed reserves has been revised on two occasions, which resulted in updating the benchmark comparison, credit risk, and portfolio duration, to better safeguard the bank ’ s assets and address international markets ’ volatility. the main changes consisted in reducing banking credit risk associated with deposits in commercial banks maturing in or before one year. the reference composition for banking risk was reduced from 37 % to 20 %, while for sovereign risk it was raised from 63 % to 80 %. furthermore, during this year the minimum risk rate for banks to be eligible was changed from a - to a, also restricting investments in banking institutions rated a and

mario marcel : the monetary policy report and the financial stability report presentation by mr mario marcel, governor of the central bank of chile, before the finance committee of the honorable senate of the republic, santiago de chile, 19 december 2016. * * * introduction mr. president of the senate ’ s finance committee, senator andres zaldivar, honorable members of this committee, ladies and gentlemen, thank you for your invitation to present the views of the board of the central bank of chile on the recent macroeconomic and financial developments and prospects and their implications for monetary and financial policy. this vision is contained in detail in our monetary policy report of december 2016 and our financial stability report of the second half 2016. on this occasion, our reports feature a special characteristic : they were prepared mostly under the direction of the bank ’ s outgoing governor, rodrigo vergara, and are being presented by an incoming governor. interestingly enough, this is rather anecdotic, since our reports rely on the work of the bank ’ s technical team and the board ’ s deliberations, regardless of the governor in charge. this attests to the continuity that characterizes a sound institution with permanent responsibility for the chilean economy ’ s monetary and financial stability, and that must inspire confidence in economic agents and in the population at large. this is remarkable, in my view, as the soundness and reliability of institutions is a matter of growing concern in chile these days. still, we must be aware that accumulated trust does not suffice ; in our present world such trust must be renewed every day, on the basis of the ability to respond to new demands and challenges. i will comment on some of these challenges towards the end of my presentation. on the recent evolution of the economy, the most noticeable event has been the drop in inflation. after several quarters in which the annual cpi variation was above 4 %, in recent months it fell sharply to 3 %, placing y - o - y cpi inflation at 2. 9 % in november. we had foreseen inflation declining at a slower pace. in the monetary policy report we presented to the senate last september, we projected that annual headline inflation would close this year at 3. 5 %. today, private expectations — as well as our own — put it a little under 3 %. in addition, in the baseline scenario i will be describing in a moment, we assume that this decline will continue, such that during most of 2017 annual cpi inflation will stand in