4 And both have taken steps to improve the resilience and coverage of overnight unsecured benchmark rates – the Bank of England by taking over the  3  Reforming Major Interest Rate Benchmarks – July 2014 http://www.fsb.org/wp-content/uploads/r_140722.pdf. 4  In the US, this is the Alternative Reference Rates Committee (ARRC). In the UK it is the Working Group on Sterling Risk-Free Reference Rates. 4  BIS central bankers’ speeches  administration and reform of SONIA 5, and the Fed by overseeing the creation of the Overnight Bank Funding Rate. Such benchmarks are a vital means of assessing the passthrough efficiency of changes in policy rates – meaning Darell and Arvind will continue to be able to write papers on the topic long into the future. Pass-through beyond money markets Let me turn briefly to pass-through beyond money market rates. Deep structural forces affecting savings and investment preferences have combined with the ongoing legacy of the financial crisis to push the interest rate required to keep our economies in balance much lower than historical experience. The resulting proximity of policy rates to what was once known as the zero lower bound has important implications for the pass-through of monetary policy. Specifically, once household and business deposit rates have reached a very low level, it becomes difficult for banks to reduce them further. Recent international experience seems to bear this out – Chart 7 shows that pass-through to retail deposit rates tends to be weaker when risk-free rates are very low.
This trajectory assumes that the peso depreciation of recent months will pass through to prices as it has done historically; that wages will be adjusted in line with productivity changes; and that capacity gaps will remain stable over the projection horizon. About the real exchange rate, we use as a methodological assumption that it will stay near its current values, considering that it is within the range believed to be consistent with its long-term fundamentals. We also use, as a working assumption, that the monetary policy rate will not change in the short run. BIS central bankers’ speeches  3  The baseline scenario reflects those events believed to be the most likely to occur with the information at hand at the closing of this Report. There are risks, however, that, if materialized, could reshape the macroeconomic scenario and thus may alter the course of monetary policy. Abroad, there is the risk of when and at what speed the Fed will start raising its benchmark rate, and how this will affect financial assets. The risk of greater market volatility has increased because of the growing discrepancies between private expectations and the Fed’s announcements, plus the divergence of monetary policies of the main developed economies. In China, the risks about its performance have gained importance, reflecting its recent weakening. The evolution of the Chinese financial system and real-estate sector are the main focus of attention, as they could result in a sharper drop in the copper price.