A box in our Report makes a brief review of the factors that intervene in this relationship, showing that the transmission of global financial shocks to emerging economies is more intense when they have a fixed exchange rate regime. It has also been shown that, in the face of episodes of financial stress, the volatility of interest rates is higher in economies where the currency does not float freely. In fact, one characteristic of the developments of recent weeks has been that the increase in long-term interest rates in several emerging economies has occurred along with the depreciation of their currencies. About the fragility of the macroeconomic fundamentals, we can see that countries with high levels of inflation; high interest rates and bulging current account deficits are more likely to suffer significant adjustments in the prices of their assets when external conditions tighten. On this issue, a recent study published by the Bank presents empirical evidence that a rise in the interest rate of the Federal Reserve affects more those countries that have a worse solvency situation—measured by their level of indebtedness—and liquidity, measured through their external asset position. 5  How vulnerable does Chile look based on these criteria? Within the group of emerging economies, Chile stands out positively in institutional matters. In particular, it has an independent Central Bank, committed to a floating exchange rate regime; It also has an appropriate fiscal institutional framework, where the structural balance rule is worth noting.
The scenario of gradual convergence of inflation to the policy target, despite improved prospects for activity and short-term prices, relies in the fact that there are still important gaps in the economy. This is reflected in the evolution of the labor market, capacity utilization indicators, and the evolution of those prices most sensitive to said gaps. It also assumes that the impulse the Chilean economy will receive from abroad will be a little milder than we estimated in the last Report, showing not-so-favorable financial conditions going forward and somewhat lower terms of trade because of the higher oil price. It is with this context in mind that at yesterday’s monetary policy meeting we held the policy rate at 2.5%, thus sustaining the significant monetary impulse that has been there for over a year. Our Report’s baseline scenario assumes that this impulse will still be necessary for a while longer and we will only begin to withdraw it insofar as macroeconomic conditions continue to drive the convergence of inflation to 3% within the policy horizon. Let me now share with you the details of our macroeconomic scenario and the main risks we observe. The macroeconomic scenario Recent data for the first four months of this year show activity outpacing our projections. In part, this responded to specific supply-side factors such as fishery and electricity, gas, and water, and part to investment in machinery and equipment, hired services, wholesale trade and some durables.