3  As the 2007 financial crisis unfolded and its effects spread-out, this framework helped us to avoid large costs and evade financial problems despite our strong ties with the global economy. In the aftermath of the crisis the local currency depreciated around 45 percent in seven months, while the monetary policy rate was reduced from a relatively high level of 8.25 percent in December 2008 to a point five percent in July 2009, remaining there for about a year. Together with lowering the interest rate, the Central Bank implemented a program of liquidity provision that significantly reduced the market interest rates to a level much closer to the monetary policy rate. Additionally, in the middle of 2009 it established a term liquidity facility for banking institutions, granting 90- and 180-day liquidity at the prevailing monetary policy rate, signaling a more expansionary path for the monetary policy rate than the market expected. The active monetary policy response, together with an expansionary fiscal policy, favored by a healthy fiscal position that was achieved thanks to a fiscal rule where expenditures are determined as a function of long-run copper prices and economic growth, facilitated a rapid adjustment. After only one period of negative annual growth in 2009, the economy was able to sustain growth rates above 4 percent in the years that followed. The inflation rate fell well below the target range for about a year, but inflation expectations remained well anchored at our target of 3 percent in the two-year horizon.
Central Bank of Chile’s Twenty-first Annual Conference “Monetary Policy and Financial Stability: Transmission Mechanisms and Policy Implications” Opening remarks by Governor Mario Marcel  Good morning and welcome to the Twenty-first Annual Conference of the Central Bank of Chile. It is a pleasure to host this event that every year gives us an opportunity to reflect and discuss about issues that have direct implications on our work as central bankers from a broader perspective. I am looking forward to active discussions through the rest of the week on this year’s conference theme: monetary policy and financial stability. Ten years have passed since the onset of the Global Financial Crisis and we are still dealing with its economic consequences. But we have learnt a lot, and a decade of hindsight about the causes and long-lasting effects has led us to rethink the way we conduct monetary policy, how to ensure financial stability, and how these two elements are, or should be, interconnected. One of the most important policy lessons from the crisis concerns the relevance of actively seeking financial stability in a context of ever-increasing financial complexity. And central banks worldwide have been increasingly involved in assuring this, since it has become clear that financial stability is a pre-condition for price stability.