began in the second half of 2011. bis central bankers ’ speeches in chile, the external financial turbulence has had limited impact, and a number of the signs of spill - over that were perceived in late 2011 have reverted, at least partially. money market frictions have eased. stock markets and the exchange rate have returned to values from before the resurgence of international financial tensions, although corporate risk premiums are now higher than they were in mid - 2011. at the statistical cutoff date of this report, the peso had appreciated nearly 6 % against the dollar, since the closing of december ’ s report. considering the current level of the nominal exchange rate and the parities prevailing at the closure of this report, the real exchange rate ( rer ) is estimated to be within the range consistent with its long - term fundamentals. on the other hand, domestic output and demand have grown faster than forecast in december. after losing strength in the third quarter of 2011 – which was the information at hand at the closing of the december report – output figures of the fourth quarter accelerated. domestic demand has posted high y - o - y growth rates, yet declining. the same has occurred with consumption, supported by a strong labor market. the unemployment rate is near its fifteen - year low, which also reflects on the evolution of wages. consumers ’ expectations have improved in the past few months. on the investment side, the dynamism of engineering works – mainly related to energy and mining projects – and the recent recovery of building are worth signaling out. other indicators are consistent with a moderation of demand and output, such as the lower y - o - y growth rates of durable consumption and imports. in addition, the slower pace of growth in employment, labor income and consumer loans suggests a deceleration going forward. the board ’ s evaluation is that output gaps are closed, which is also based on signs of a tight labor market and a rapid normalization of core inflation. y - o - y cpi inflation is above the tolerance range, while core measures hover around 3 %, growing at a faster pace than in the last quarter of 2011 and forecasts in the december report. still, as i just said, the level of core measures is consistent with our assessment of the state of output gaps. the recent inflation trend is also explained by the behavior of transport fares and the prices of fresh fruits & vegetables. the latter, probably affected by climatic conditions, have followed a pattern that contrasts with their usual

provide confidence to scheme members to expand their lending to the real economy by virtue of them having greater confidence in their future access to funding. the extension also expands the fls to cover lending to financial leasing and factoring corporations ( which are a source of credit for smes ). we have been clear that the design of the extended fls particularly encourages lending to sme ’ s in determining access to the fls. incentives to lend to sme ’ s are therefore in place, bis central bankers ’ speeches no doubt about that. but we cannot promise that the results will follow almost as night follows day, because there is more to it than that. let me end, by advertising a piece of work done by your chairman - elect, chairing a group that recently produced a report on sme lending in northern ireland. in that report, kate and her colleagues point to structural market failures affecting the supply of finance to smes, which mainly relate to imperfect or asymmetric information, and which tend to be exacerbated in times of heighted economic uncertainty and risk aversion. likewise, the report points to information failures on the demand side for businesses seeking finance. the report goes on to note that over the last five years there has been a market correction as banks have moved away from a lending approach based on property as security to one that is more based on evidence of a business plan that indicates returns to the firm that will repay borrowing. linked to this shift, a property debt overhang is leading businesses with such property exposures to experience more constrained access to finance, something that, other things equal, will take time to work through. our evidence tends to support this dichotomy between the position of companies where commercial property is either the source of their business or the source of their security for borrowing, and those where there is no such dependence. the conclusions i draw from this are that as well as our part in creating the right incentives for credit to be on offer, there is a need to extend the work done by kate and her colleagues, to consider information flows in terms of particularly of credit assessments, and the issue of whether some types of commercial property are acting as a restraint or access to finance. it is also consistent with comments i hear from businesses and banks that the “ distribution ” capacity of sme lending lags a long way behind the mortgage market. in conclusion, we are determined to put behind us the legacy of issues that have called into question the capital