underpin the risk of capital flow volatility and financial market turbulence. market volatility could be fuelled by a prolonged period of low interest rates and liquidity enhancement measures, as investors continue to search for higher yield. fortunately, even amid the volatility, investors tend to go back to assessing the merits of individual economies. for the philippines, these merits include ample fiscal policy space, a sound and responsive banking system, an increasingly inclusive financial system, and a healthy external position, all of which contribute to a solid outlook for growth. indeed, the country ’ s solid macroeconomic fundamentals continue to give confidence to investors and creditors. moving forward, we will continue to invest in sound and prudent policies to ensure both price and financial stability. with our wide menu of policy tools and options, we stand ready to deploy appropriate measures as needed to ensure that liquidity stays adequate and that our financial system remains resilient against volatility in capital flows. for instance, will continue to pursue reforms in the banking sector. our objective is to enable our banks to better withstand stresses of external origin and to compete in a more integrated regional arena. to this end, we have already adopted several measures – including raising the minimum capital requirements for banks and implementing a comprehensive credit risk management framework. other measures in the pipeline include those related to basel 3 reforms. the bsp will also remain alert to possible threats to financial stability, including those associated with the build - up of leverage among households and firms, as well as banks ’ exposure to the real estate sector. to mitigate these risks, the bsp will continue to its mix of micro - and macro - prudential tools as well as surveillance mechanisms, taking in consideration their potential impact on liquidity and overall financial conditions. concluding remarks ladies and gentlemen, disinflationary pressures and divergence are just two of the key economic issues that are likely to pose challenges for central bank like the bsp. i have discussed some of the main factors that we have considered and will continue to look into in the formulation of our monetary policy stance. i hope this provides additional guidance as you continue your coverage of philippine economic developments. in closing, i wish to reiterate that while other emerging markets have begun to ease their monetary policy settings in view of their own domestic considerations, we believe that our prevailing monetary policy stance remains appropriate. supported by robust credit growth and ample liquidity, current inflation and output growth dynamics in our country do

expect inflation to stay within the government ’ s target range over the policy horizon. this outlook is supported by firm domestic demand conditions. our latest expectations surveys show that market sentiment remains broadly favorable, which should in turn drive up spending and investment. wage levels, potential increases in utility rates and possible power shortages also lead us to expect that inflation is likely to remain positive, rather than reach or fall below zero. second, consistent with our symmetric approach to inflation targeting framework, we have room to wait for additional data to see if the lower end of our target range will be breached for a persistent period. we are mindful of the uncertainty over the path of oil prices moving forward. as the recent hike in fuel pump prices shows, oil prices can rise just as quickly as they have fallen. keeping an eye on possible turning points, therefore, will help us see if there is any need to recalibrate monetary policy. as always, the key is to make the necessary adjustments in a timely and calibrated manner. divergence this ties in closely with our second key issue : divergence in economic prospects across economies, and consequently, divergence in monetary policies. we have been talking about this topic since early last year, and it has retained its relevance to the present. in fact, the disinflationary effect of the steep decline in oil prices has served to complicate our own views of the outlook for 2015, especially with regard to overseas monetary policies and their potential implications for financial stability. more specifically, a robust recovery is underway in the us. as a consequence, financial markets largely expect the federal reserve bank to raise its policy rates sometime in 2015 as it moves to normalize its monetary policy settings. however, if inflation in the us softens considerably, then the increase in interest rates may come later than anticipated, keeping in mind the fed ’ s forward guidance on its inflation objective. by contrast, low oil prices increase the risk of deflation in the euro area and japan, which could further stall their economic recovery. at the moment, even with substantial monetary easing measures already in place, economic activity in these two jurisdictions continues to struggle for traction. this raises the likelihood of an extended period of monetary accommodation by their respective central banks. bis central bankers ’ speeches there is a benefit to this, as this could provide some counterbalance to the potential decline in global liquidity and increase in interest rates resulting from tighter monetary policy in the us moving forward. on balance, these contrasting prospects