The capacity of the Bank to react to a global worsening has been already proven during the episode of 2008–2009. The Board, as has been said time and again, has the flexibility and disposition to use these tools as needed. In this scenario, our latest Monetary Policy Report assumed that a somewhat more expansionary monetary policy would be necessary in order to accommodate and reduce the negative effects of the forecast external developments. The 25 basis point reduction in the monetary policy rate we applied in our last monetary policy meeting goes in this direction. At present our policy rate is at normal levels, and projected inflation and expectations two years ahead are aligned with the target for this variable. This situation grants us the flexibility we  2  BIS central bankers’ speeches  need to conduct monetary policy in the eventuality of a sharper deterioration of the external scenario with significant consequences to the Chilean economy. The financial markets have exhibited an increase in external credit premiums paid by Chilean banks and firms abroad, offset to some extent by base rates in record lows. In the local money market we have seen some frictions. As a response, the Bank has applied more active management of liquidity in domestic currency, in order to make sure that the money market operates in consistency with the orientation of our monetary policy.
Chile)  3.5  6.3  4.2  4.2  3.6  3.6  4.0  3.9  Commodity exporters  3.1  2.9  2.0  2.1  2.5  2.4  2.8  2.6  Trading partners  3.6  6.1  4.2  4.2  3.8  3.8  4.2  4.3  Terms of trade  8.1  23.8  -2.9  -  -6.7  -  -3.5  -  (levels) LME copper price BML $  -  342  401  -  350  -  340  -  Gasoline price $  -  598  804  -  784  -  748  -  (e) Estimate. (f) Forecast. (1) Assuming average economic growth for the rest of the world of 3.2% in the three-year period 2011-2013. (2) Assuming average economic growth for the rest of the world of 1.7% in the three-year period 2011-2013. Sources: Central Bank of Chile based on a sample of investment banks, Consensus Forecasts, the IMF and statistics bureaus of respective countries. Figure 1 Conditions of 90-day rates in CLP market(1) (2) (percent) 12  12  10  10  8  8  6  6  4  4  2  2  0  0 08  09  10  11  12  (1) Prime deposit rate. (2) Dotted vertical line marks date of CBC's REPOS purchase announcement. Source: Central Bank of Chile. 4  BIS central bankers’ speeches