The Central Bank stated, repeatedly, even in our May Monetary Policy Report, that the monetary stimulus would be sustained for a prolonged period, even beyond what could be inferred from financial asset prices at the time. Finally, in our latest monetary policy meeting on the 9th of July, the Board cut the MPR to its minimum level (0.5%), indicating again that the MPR would be kept at expansionary levels for a prolonged period of time. In order to reinforce this decision and align financial asset prices and the money market interest rates with the monetary policy path, complementary measures were adopted for the provision of liquidity and the administration of our debt. After this rapid process of monetary easing, that has no precedent in any emerging economy nor in our economic history, the expectations regarding the level of the MPR have shown a very significant adjustment (figure 1). Not only has the shortest segment of the yield curve shifted downward, close to the current MPR level and the new measures of liquidity  BIS Review 105/2009  1  provision, but the longer-term segments as well. Private expectations and financial asset prices are showing that the expansionary monetary policy stance will remain in place for several more quarters, or even years. Our latest monetary policy decision was complemented, as I just said, with additional measures that enhanced its impact.
Also, early in the year we witnessed a substantial increase in issues of corporate bonds, which can be interpreted as the response to less favorable financing conditions in both the domestic and the external banking market, a situation that has lost momentum in recent months. Conclusions Monetary policy has acted aggressively to soften the impact of the global financial crisis. Although it is impossible to fully offset all the repercussions that such a severe crisis has on a small, open economy like Chile, especially with the lags that monetary policy operates, we have succeeded as a country in mitigating them substantially. We have preserved the macroeconomic stability framework, even providing room for an extraordinarily stimulating mix of macroeconomic policies. Therefore, we can now state without a doubt that, had we not adopted the stimulus actions you have seen in recent months, our country’s economy would be in considerably weaker shape and we would not be able to envision any prospects of recovery for the second half of this year. Conditions are ripe for the Chilean economy to experience a healthy recovery of output and expenditure during the second half of this year. For the economy to pick up, however, it will still require that the global uncertainty, regarding both the financial dimensions of the crisis and its effects on world activity, fades. We have seen promising signs allowing us to be hopeful, but it is premature to think that the bad news are over.