percent annual inflation target, which the bank of mexico established at the end of 2003. as you know, the policy overnight interest rate has been maintained at 4. 5 percent since august 2009. this stance has proved adequate, as inflation has been gradually converging to the central bank ’ s objective. in particular, during 2011, inflation has remained substantially close to albeit above this benchmark, averaging 3. 4 percent. in the future, the bank of mexico will have to continue monitoring the various risks that may potentially impede further progress in the consolidation of price stability. this commitment is its main contribution to economic certainty, which is of paramount importance, especially during these times of financial turbulence. in an inflation - targeting regime, what really matters for the guidance of monetary policy is future inflation and how this relates to the policy objective. 7 in this sense, i believe that the main risk to the consolidation of price stability is the stickiness that various measures of expected inflation have persistently shown. on the basis of some analysts ’ surveys, average expected inflation for several time horizons, including medium - to long - term, continue to be above the target. also, the break - even inflation implicit in the bond market has remained close to 4 percent. the anchoring of these expectations around the inflation target remains an important challenge to monetary policy. i expect that this anchoring will be achieved through the maintenance of a consistent monetary policy, and that the mexican economy will continue on the convergence path to the inflation target in an environment of economic growth. concluding remarks mexico ’ s financial system, along with its healthy fiscal position and low inflation, constitutes a fundamental strength for the economy in the face of adverse external conditions. this strength has been the result of improvements in the regulatory and supervisory framework as well as in firms ’ management models. on the other hand, the banking system faces important challenges in order to more deeply contribute to long - term economic growth. perhaps the most important endeavor is for the system to prudently increase its scale and scope within a competitive environment. mexico ’ s economic outlook is one of moderate growth at a rate that surpasses that of advanced nations but with the main risks coming from those economies. inflation is likely to remain subdued, sustaining its convergence to the permanent 3 percent target. nevertheless, the bank of mexico will have to continue monitoring the risks that may hinder progress toward the consolidation of price stability. for a seminal exposition of inflation targeting, see bernanke, b. s.

growth are positively correlated, and causation seems to run from the former to the latter. 3 but credit expansion may not necessarily be desirable unless it is done prudently. in particular, risk management should not be traded away for size, as the impetus could be short - lived and the banks ’ contribution to stability and growth could easily evaporate or become negative. for example, the ratio of bank loans to gdp in 1994 reached levels more than twice as high as the current ones, but poor origination and servicing led to disastrous consequences. 4 also, the development of the banking system should be carried out at the initiative of the participating financial firms in a highly competitive environment. in particular, it should not depend on credit targets set under the influence of government authorities. such an approach proved to be a contributor to the excessive risk - taking in mortgage lending to the crisis in the united states. moreover, competition has its own benefits, including a wider variety of financial products and services at lower prices. a larger scope of competitive activities can be expected to cover broader geographic areas, incorporating underserved communities or remote and lowincome communities not served at all. the different types of non - bank banks and niche financial intermediaries that mexican regulation currently allows, such as multiple - purpose financial institutions ( sofomes ) and popular financial institutions ( sofipos ) play a complementary role by contributing to making basic financial services accessible to previously unbanked regions and families. two additional recent developments promise to be an important means of financial inclusion in mexico. one is the incorporation of retail stores as bank agent premises. retail stores can facilitate the population ’ s access to basic financial transactions, such as deposits, withdrawals and bill payments. in fact, using them is an efficient way to expand the banks ’ distribution channels to communities in which it is not profitable to open a branch or even to maintain an atm. agent premises have already equated in size the commercial banks ’ branch network. a second emerging development is mobile banking using cell phones to conduct basic transactions. cell phones in mexico are a common means of communication for rich and poor alike and have seen an exponential rate of expansion. as of august 2011, the number of mobile phones reached almost five times that of fixed telephone lines in the country. 5 in any case, the future progress of banking activities will have to occur within an efficient and well - balanced regulatory and supervisory framework for financial institutions. this is all the more important given the