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.
In any case, and despite the impact of external volatility on the prices of some assets, financial markets have operated normally. In this context, I would like to highlight the need to continue advancing in initiatives to strengthen our regulatory and supervisory framework. One such case is the bill to reform insurance companies currently being debated in Congress. The banks’ solvency and liquidity indexes have been stable in the first half. In a context of good rents, core capital has hovered around 10 percent while regulatory capital – as measured through risk-weighted assets – around 14 percent. Meanwhile, since the last Financial Stability Report the banking industry has increased its long-term debt certificates, and some medium-sized banks have pursued strategies to attract retail deposits. Another favorable development is the greater diversification of banks into different types of credit from abroad. Also worth noting is the hoarding of liquid assets in foreign currency. The stress tests presented in our Financial Stability Report show that the banking industry’s current capitalization levels allow it to cushion an episode characterized by a GDP slowdown, higher financing costs in local currency and an exchange rate depreciation associated with the materialization of the external risk scenario. As for household debt, it should be noted that, on aggregate, borrowing has increased in tandem with disposable income. This has translated into fairly stable aggregate debt indicators, whether comparing the debt level or financial burden with disposable income or the wage mass.