BIS central bankers’ speeches  5  In short, the country is prepared to face a somewhat less favorable external scenario next year, which undoubtedly will have effects on the domestic economy. For years we have built solid macroeconomic balances, which yield their fruit when adverse situations hit. We are confident that, in such a scenario, this will be no exception. Our institutions, solid but flexible at the same time, distinguish us in the world. This allows us to look at the country’s future with calm and optimism. We as central bank will continue to contribute our own efforts to the stability of the currency and the normal functioning of the internal and external payment system, the development and welfare of the Chilean population. Thank you. 6  BIS central bankers’ speeches  Figure 1 Nominal exchange rate variation in 2013 (*) (percent) South Africa India Indonesia Australia Brazil Turkey Peru Colombia Malaysia Philippines Russia  Emerging Asia  Chile New Zealand  Latin America  Thailand  Other  South Korea Poland  Emerging Europe  Mexico Hungary Czech Rep. Bulgaria Slovakia China  -5  0  5  10  15  20  25  (*) An increase denotes a depreciation. Sources: Central Bank of Chile and Bloomberg.
The baseline scenario reflects the developments that the Board believes to be the most likely to occur with the information at hand at the statistical closing of the Report. However, there are risk scenarios that, if materialized, might change the macroeconomic outlook and, therefore, the course of monetary policy. On this occasion, after evaluating the alternative scenarios, the Board estimates that the risk balance is downward biased for output and unbiased for inflation. On the global front, a first risk comes from China, namely the fragility of its financial system, among other factors. As I said at the beginning, the banks’ off-balance-sheet financial intermediation has been increasing and credit has accumulated enormous growth in the past few years, with a substantial portion going to local governments. In other economies, episodes of rapid credit growth have resulted a few years down the line in a deterioration of the quality of banking assets and financial intermediaries’ balance sheets, and in a slowdown in domestic demand. Although the Chinese financial system has some features that differentiate it from others, there is no denying that any difficulties in this field could have negative effects on China’s growth for a longer period. If so, it would hurt world growth and commodity prices, particularly for copper. A second risk coming from abroad has to do with the way emerging economies will accommodate the withdrawal of monetary stimulus packages in developed countries.