Still, it is worth mentioning that recent quarters’ indicators show a slight decline in the percentage of loans that cover a high portion of the property’s value, the Bank Lending Survey reports somewhat tightened credit standards and the business cycle has resulted in a slower pace of total lending growth, although mortgage credit shows a smoother trend. I cannot stress too much how important it is for the agents involved to consider when making their investment and financing decisions that the future behavior of prices might take a detour away from recent trends. Household borrowing risks remain stable. Total household debt rose a little in the last quarter of 2013. In banking debt, there continues to be a shift in composition towards middle to upper income, with faster growth in borrowed amounts than in the number of debtors. Repayment indicators for both bank and non-bank providers show no major change, probably because of a change in composition of the consumer portfolio or because a milder impact of the business cycle on the labor market. Banks have been gradually reducing growth in commercial credit and, while less, also consumer credit, reacting to the economic slowdown. Indicators also show a reduction in the exposure to the most pro-cyclical sectors, which has been visible in stable aggregate default levels in both portfolios. Banks’ profitability increased somewhat in the past few quarters, while their capitalization levels have remained stable.
It also uses as a working assumption that nominal wages will be adjusted in line with productivity and the inflation target. The baseline scenario also uses as a methodological assumption that the MPR will follow a path comparable to that that can be inferred from the prices of financial assets outstanding at the statistical closing of this Monetary Policy Report (figure 8). The baseline scenario reflects the events that are believed to be more likely to occur with the information at hand at the closing of this Report. However, there are risk scenarios which, if materialized, may reshape the macroeconomic outlook and thus the course of monetary policy. This time, having evaluated the alternative scenarios, the Board believes that the risk balance for both output and inflation, is unbiased. Internationally, the biggest risk continues to be linked to the Chinese economy and its financial system. This risk has significant impact, considering China’s weight in the commodities market, copper included, and its importance in world trade. Besides, one cannot rule out the vulnerabilities in other emerging economies resulting in new episodes of volatility. The risks relating with the United States withdrawing its monetary stimulus programs and the Eurozone’s macro-financial situation have diminished, but are still capable of widening the fluctuations in the global financial markets. In particular, the current context of lower sovereign premiums could trigger a sharper reversal. Still, the improved performance of the U.S. economy would also mean a stronger impulse from abroad. Locally, the main risk has to do with the short-term inflation outlook.