Three decisions of the Central Bank of Chile to intervene the foreign exchange market during this decade can be interpreted as decisions under extreme circumstances. They were associated to severe stress in foreign exchange markets or to the need to strengthen the international liquidity position. To avoid conflicts with price stability, the intervention that was begun in April has been implemented mechanically and transparently in order to orient monetary policy in consistency with the required convergence of inflation to the target. It is hard to find a financial crisis as severe as this one since the Great Depression. Still, its real consequences are still much milder than those of other episodes, including of course the Great Depression and even the Great Inflation of the 1970s. We have learned two lessons from these occurrences and which are clearly present in the acts and statements from central bankers around the world. One is that central banks are the lenders of last resort and must supply the necessary liquidity so that financial markets can operate, even in critical times. The other is that inflation must be fought with determination and letting it settle down and stay in the economy is very costly. Different perceptions and assessments can alter the short-term course of monetary policy, so flexibility and realism are necessary to timely correct the route, and this has been happening around the world and in Chile in particular.
(2) Short term nominal interest rate minus CD. Sources: Bloomberg, OECD and Survey of Professional Forecasters. Figure 8 Banking credit approval standards (*)  Corporate credits (big and medium)  Consumption credits  50  50  40  40  30  30  20  20  10  10  0  0  -10  -10  -20  -20  -30  -30  -40  -40  -50  -50  -60  -60  -70 1t03  1t04 US  1t05 Euro area  1t06  1t07 UK  1t08 Japan  -70 1t03  1t04  1t05  US (credit cards) UK  1t06  1t07  1t08  Euro area Japan  (*) Positive value is more flexibility in credit approval. Sources: ECB, Bank of Japan and Federal Reserve. 12  BIS Review 124/2008  Figure 9 Oil WTI prices and GSCI grain and cereals and GSCI energy (dollars per barrel; index 01/01/2007=100) 240  160 140  200  120  160  100 120  80  80  60 40 Jan .07  May.07  Sep.07  Jan .08  May.08  40 Sep.08  GSCI energy GSCI grains and cereals  OIL WTI Source: Bloomberg. Figure 10 Annual inflation (*) (percentage) 10 8 6 4 2 0  07  Jul Latin America (1)  08 Asia EM (2)  Europe EM (3)  Jul G3 Economies(4)  (*) Geometric average of countries each region.