The concern for financial stability is reflected not only on the regulations that the CBC is responsible for issuing, but also in a permanent monitoring and assessment of the Chilean financial system, its vulnerabilities and the risks it faces. This is done by analyzing many sources of information and the ongoing communications with the financial market’s players and supervisors. Whenever the view emanating from this analysis so warrants, it is verified with the respective institutions and communicated to the competent supervisors. Aside from the continuous monitoring by the CBC, the view of the Bank on the status and risks of the Chilean financial system is communicated twice a year in our Financial Stability Report (IEF), which is made available to the public and presented to Congress together with the Monetary Policy Report (IPoM). The Bank’s communication of risks in the Financial Stability Report seeks to inform financial system participants of the Bank’s vision regarding the main vulnerabilities and risks in the financial system from a forward-looking perspective and thus encourage them to take action to reduce those vulnerabilities. This scheme has proved effective. For example, after following the accelerated development of post-crisis housing prices, in the December 2012 Financial Stability Report the Central Bank expressed its concern about this trend and the risk that it implied in a context of high leverage in the origination of credits. After this warning, we saw a fall in the LTV of new loans, especially noticeable in the significant drop in loans carrying an LTV of 100%.
There are also other factors not connected with the expectations that push up asset prices and can temporarily lead to the increase in demand that is created by exaggerated asset prices not being  2  BIS Review 43/2002  expressed as inflation and thus not being counteracted by tighter monetary policy. A high level of credibility for the central bank can also create low and stable inflation expectations, which can mean that inflation will not rise for a period of time, despite strained resource utilisation. Deregulation on globalised markets can also temporarily subdue inflationary pressure. Is there reason to change strategy? The question is whether it is possible to raise ambitions for monetary policy to prevent financial bubbles arising? Most people advocate a strategy where asset prices are merely taken into account to the extent that they affect inflation forecasts during the normal forecast horizon. However, there are also advocates of a strategy where monetary policy also prevents the occurrence and effects of financial bubbles. Those who maintain that monetary policy cannot counteract the occurrence of financial bubbles point out that the central bank has no possibility of determining whether or not asset prices are fundamentally motivated. They also point out that it is difficult to motivate an interest rate hike that is essentially aimed at counteracting an excessively large expansion in credit and an overly high real demand if the assessments of inflation do not at the same time show that the target level will be exceeded.