growth is 2. 5 per cent – which includes one quarter of negative growth ( the second quarter of 2009 ). but using the simple rule of thumb implied by okun ’ s law, the left side of figure 6 shows the rates of gdp growth necessary to return unemployment to 5 per cent over different time frames. the chart highlights that we need several years of very strong growth to reach 5 per cent unemployment. for example, to reach 5 per cent unemployment by the end of 2013, real gdp growth would have to average 5 per cent per year. 4 such a growth rate has some historical precedent, as shown on the right side of the chart, but it is much faster than the growth rate in the past two recoveries. and to reach 5 per cent unemployment by 2015 would still take growth averaging 4. 2 per cent per year – considerably faster than the average rate of growth after the 1991 and 2001 recessions. given the need for very rapid growth to get unemployment back to 5 per cent, let me pose an oversimplified question – why would policymakers not keep monetary policy very accommodative, and fiscal policy very stimulative, until we had a sustained growth rate that brought the economy much closer to full employment? at least on the monetary side, one reason might be concern among policymakers that rapid growth would be inflationary. to explore that, let ’ s turn to figure 7, which shows the total and core inflation rates, measured by changes in the cpi, with recession shading. what the chart shows is that inflation has declined in each recession, including this so - called great recession. it also highlights that inflation tends to continue falling in the early stages of a recovery. figure 8 shows the change in the inflation rate from the business cycle peak. from the peak ( shown at zero on the horizontal axis ) the inflation rate is very restrained, and generally negative, for many months. with substantial excess capacity in the economy during the early stages of a recovery, workers don ’ t tend to demand higher wages, and firms don ’ t feel at liberty to substantially increase prices. since the great recession has resulted in substantial excess capacity, it would be unusual to see increases in the inflation rate in the early stages of this recovery. however, while inflation does not normally increase in the early stages of a recovery, some economic observers may be concerned that this recovery will be different, because of the unusual actions that the federal reserve needed to take. as you know

sors and consumer prices ( % ) nbs calculation. 1 5 9 1 5 9 1 5 9 1 5 9 1 5 9 1 5 9 1 5 9 1 source : gallup, ipsos / ninamedia, bloomberg and nbs. * ipsos and gallup agencies until december 2014, ninamedia agency since december 2014, and ipsos agency since january 2018. after reaching this year ’ s low in april, we expect inflation to gradually approach the target in the coming period, though this year it will remain close to the lower bound of the target tolerance band. we expect inflation to approach the 3. 0 % midpoint in the second half of 2019, and to remain stable around that level until the end of the projection horizon. in view of this, we expect inflation to remain low and stable in the coming period as well. in other words, in the medium term, year - on - year inflation will move within the target tolerance band ( 3. 0 % ±1. 5 % ) until the end of the projection horizon, i. e. in the next two years, also owing to a gradual recovery in domestic demand. medium - term inflation expectations of the financial and corporate sectors are also anchored at the target midpoint of the national bank of serbia. * * * monetary policy easing amid low inflationary pressures helps speed up lending and economic activity, which, along with the efforts to resolve non - performing loans, made the share of these loans fall below the pre - crisis level. by carefully monitoring and analysing the developments in the domestic and international environment, we assessed that the expected movement in inflation and its underlying factors going forward, along with the further strengthening of macroeconomic fundamentals, allow for additional monetary policy easing. accordingly, we decided to further cut the key policy rate in both march and april by 25 basis points to 3 %, its lowest level in the inflation targeting regime. its sharp drop in the period since the monetary easing cycle began ( may 2013 ) had a strong impact on the rise in disposable income, thus contributing to a faster recovery of domestic demand. we made the decisions on further monetary policy easing taking into consideration not only that the february medium - term inflation projection was lower than the previous one, both for this and next year, but also that inflationary pressures weakened further after the february projection. on the other hand, monetary policy caution was mandated by pronounced uncertainty in the international commodity market, mainly regarding the movements in oil prices