Furthermore, as suggested by these projections and private expectations, in the fourth quarter the GDP will post a positive annual growth rate. Annual inflation, in turn, is expected to begin rising and become positive during the first half of 2010. Our financial system has been able to weather the external turmoil and the Central Bank has taken actions to avoid inconveniences in the provision of liquidity and implemented a highly expansionary monetary policy, not just reducing the policy rate to its lowest possible. However many risks are still there and we must be extremely careful in our decisions. The economy is beginning a recovery process that is yet to be well grounded. Output gaps are significant and will close gradually; probably taking more than the next two years. Inflationary pressures are generally low. We have said in our communications that we will hold the policy rate at its lowest at least until the second quarter of 2010. However, it is not a mechanical commitment in the sense that after that time we will begin to withdraw the monetary impulse. Experience has taught us the importance of moderation, and a hasty withdrawal could severely hinder economic recovery and jeopardize convergence to the inflation target. As in earlier occasions, our inflation-targeting regime and the credibility it has earned allow us to handle monetary policy very flexibly. Accordingly, we reiterate that the Board will use all the policy tools at hand so that projected inflation stands at 3% over the policy horizon.
BIS Review 9/2010  7  Figure 3 Monetary policy interest rate (MPR)  MPR change  MPR level  (basis points)  (percent)  Japan U.S.A. Canada Switzerland Sweden Chile Hong Kong U.K. Israel Eurozone Peru Czeck Republic Norway Korean Republic Malaysia New Zealand Colombia Poland Australia Philippines Mexico India China Hungary Turkey Indonesia South Africa Brazil Russia Argentina Iceland  Turkey Chile Colombia New Zealand Iceland Peru South Africa U.K. India Brazil Norway Sweden Mexico Korean Republic Israel Australia Eurozone Hong Kong Indonesia Canada Poland Switzerland Czeck Republic China Hungary Russia Philippines U.S.A. Malaysia Japan Argentina -1,200 -1,000  -800  -600  -400  -200  0  0  200  From 4.Sep.08 to 15.Dec.09  2  4  6  8  10  12  At 15.Dec.09  Source: Bloomberg. Figure 4 Liquidity conditions of the interbank market at three months (*) (basis points)  400  400  300  300  200  200  100 0  Jan.07  Jan.08  Japan  U.S.A.  Jan.09  100  Volatility in developed markets (percent)  100  80  80  60  60  40  40  100  20  20  0  0  0  Jan.07  Eurozone  Jan.08  Jan.09  VIX index volatility  (*) Spreads between the Libo rate and the Overnight Index Swaps rate. Source: Bloomberg.