Corporate debt shows a similar pattern, increasing along with economic activity, without any widespread deterioration of financial indicators. Thus, it is our view that the Chilean financial system has not suffered any material increase of its systemic vulnerabilities. BIS central bankers’ speeches  5  However, our Financial Stability Report also identifies some elements that might be sources of risk and that must be closely monitored. The construction and real estate sector has been strong lately. Activity in the real estate market has had stronger sales as a counterpart, for both housing and commercial use. While the vacancy rate in the commercial sector has remained low, the expected substantial expansion of supply and its inertia, especially in top-quality offices, is one factor that must be monitored closely given the risk scenarios facing economic activity. The evaluation of any new project should take this element into consideration. In the same token, aggregate housing prices have evolved in line with the economy’s level of interest rates and income. However, at some higher-priced districts, prices are still outgrowing their historic trends, possibly due to limited land available. It is important to keep in mind that the materialization of negative risk scenarios could lead to a breakdown in current price trends. The potential implications of this are price adjustments influencing the returns of executed projects and, additionally, the collaterals backing mortgage loans. With respect to household debt, two factors deserve careful attention. One is its rate of expansion.
As in late 2011, the main effects of these tensions in emerging economies, aside from lower commodity prices, have been the depreciation of their currencies, fallen stock prices and increased risk premiums on their external bonds. Chile has not been spared, although as of the statistical closing of these Reports the effects have been limited. Compared with March, the peso/dollar parity has depreciated somewhat below 5 percent; the stock market, as measured by the selected price index IPSA in pesos, has lost over 7 percent, and the sovereign premiums of Chilean CDS have risen nearly 40 basis points. Money markets, meanwhile, have operated normally. In contrast with the developed world, in Chile domestic output and demand are still strong. In the first quarter, y-o-y GDP growth exceeded March’s forecasts. However, in quarter-to-quarter terms it lost strength with respect to late 2011 and grew according to trend. Inflation has been lower than expected, which, combined with the drop in international fuel prices, has reduced the risks for its short-term evolution. In general, medium-term inflationary risks are still latent because domestic markets remain tight. In this context, the Board has kept the monetary policy interest rate (MPR) at 5 percent since January, and has conditioned its future movements to the implications of domestic and external conditions on the inflation outlook. Chile is on a healthy position to confront further deterioration of the global scenario.