europe before commenting on current developments, let me first explain what i understand by financial integration, and how integration is different from mere convergence in asset prices or yields. in the eurosystem, we define financial integration as a situation whereby there are no frictions that discriminate between economic agents in their access to – and their investment of – capital, particularly on the basis of their location. this means that financial integration is achieved when there is equal market access, de facto and de jure. in such a setting one would also expect to see significant cross - border holdings of financial assets, along with a convergence of asset prices and yields across borders. the latter follows from the law of one price, provided that these assets have similar cash flows and are affected by similar risk factors. this means that, when we observe a differentiation of yields across borders, this observation, in itself, is not sufficient evidence of market fragmentation. it may just mean that markets are pricing different risks. similarly, different interest rates on loans to bis central bankers ’ speeches smes located in different countries can reflect different productivities. 1 conversely, the well - known convergence of sovereign yields across countries in the euro area to very low levels before the financial crisis did not, in itself, imply market integration. the bottom line is that convergence of prices does not necessarily mean integration ; it is a necessary but not a sufficient condition. in my discussion today, i will therefore refer both to price - based indicators and quantity - based indicators of cross - border holdings. surely, most economists would agree that international financial integration is by and large beneficial. 2 this is for several reasons. first, stable, integrated and adequately supervised markets facilitate an efficient allocation of resources both over time and across national borders, enabling investors to fund profitable investment opportunities whenever and wherever they arise. second, financial integration allows the inter - temporal smoothing of consumption in response to occasional income shocks, and the diversification of households ’ financial assets, protecting their revenue against shocks to their labour income. this second reason is of special importance in a monetary union, where the stability of the single currency requires adequate risk - sharing mechanisms through goods, labour and capital markets. third, a higher degree of financial integration enhances competition among financial institutions as well as among financial market infrastructures and reduces the costs of financial intermediation. while international financial integration is beneficial, it is vital in the case of the euro area. a highly integrated financial system is necessary to ensure that the impulses

; on one hand, the significant fall in the oil price and, on the other, the depreciation of the peso. on the latter, it is important to stress that, unlike the depreciation driven by the social unrest, this time the depreciation is not idiosyncratic, but responds to the global appreciation of the dollar. thus, its transmission to local prices should be less. meanwhile, although in the current situation price increases could originate in supply - side issues ( e. g. products in short or null supply ), projections are that the sharp fall in demand for other goods and services will predominate in the inflationary dynamics over the medium term. in the baseline scenario, inflation follows a downsloping trajectory in the coming quarters, down from 3. 9 % in february to around 3 % annually in the last quarter of this year, to remain in the neighborhood throughout 2021 ( figure 10 ). in this scenario, medium - term inflationary pressures have fallen substantially, so the convergence of inflation to the 3 % target requires that monetary policy remain in this highly expansionary stance for an extended period of time. accordingly, during march the cbc board lowered the policy rate by 125 basis points to 0. 5 %, its technical minimum. in doing so, monetary policy has attained a high level of expansion, exceeding that of some comparable economies ( figure 11 ). even if the mpr is kept at this minimum level for a long time, the cbc board will continue to take every measure necessary to promote the proper functioning of financial markets and the achievement of the bank ’ s inflationary and financial stability objectives. from this report onwards, we have decided to implement a more explicit communication policy regarding possible future paths for the mpr, in what we call the “ mpr corridor ”. this is in line with international best practices and with the recommendations of the independent evaluation panel that evaluated our policy framework last year. a box in the report describes the range of trajectories consistent with the baseline scenario, which includes the baseline forecasts and sensitivity scenarios that are consistent with expansions of activity at the upper and lower limits of the projection range, but which may require different mpr trajectories to achieve inflationary convergence within the policy horizon. this corridor underlines the uncertainty surrounding three dimensions : ( a ) the initial reading of the economy, ( b ) the future developments of the macroeconomic scenario and its impact on inflation convergence, and ( c )