prices on other prices. we also ensured that inflation should return within the target band over the projection horizon. our response was, however, more moderate than before. hence, after raising the key policy rate by 50 basis points in december, in january and february we lifted it further by 25 basis points each, to 5. 5 % at present. at the same time, by maintaining the relative stability of the dinar exchange rate against the euro, we have helped limit the effects of the pass - through of high import prices to domestic prices and sustained macroeconomic stability in the conditions of heightened global uncertainty. the dinar strengthened by 0. 2 % against the euro in nominal terms in 2022. we intervened in the interbank foreign exchange market by buying eur 1 bn net to prevent excessive strengthening of the dinar, thereby further boosting the country ’ s foreign exchange reserves to the highest level on record. the level of foreign exchange reserves well exceeds the benchmark values of all typically used reserve adequacy metrics, which indicates that they are an important buffer against a wide range of potential risks from the international and domestic environment. in particular, i wish to highlight that, in the current 5 оf 10 circumstances of extreme uncertainty, when gold purchases by central banks globally have climbed to an all - time high, we have increased our gold holdings in foreign exchange reserves to 10. 8 %, which is well above the average for emerging economies and close to that for advanced economies. one of our text boxes in this report deals with recent foreign exchange reserve trends worldwide, as well as the reserve adequacy metrics, with special emphasis on serbia. chart 6 dinar exchange rate and nbs transactions in the fx market ( eur / rsd ) * * chart 7 value and structure of nbs fx reserves ( in eur mn ) ( in eur mn ) 20, 000 securities foreign cash and deposits abroad sdrs gold 18, 000 16, 000 14, 000 - 150 12, 000 - 300 10, 000 - 450 8, 000 - 600 nbs transactions in the fx market, monthly ( rhs ) * eur / rsd, monthly average ( lhs ) * * - 750 6, 000 - 900 4, 000 - 1, 050 - 1, 200 source : nbs. * + net purchase ; - net sale. * * eur 1 in rsd. 2, 000 source : nbs. monetary tightening passed through to dinar

need to be more volatile to produce the same results compared to a less dollarized financial system ( i. e. euroized, in most of these countries ). second : if a system relies heavily of fx lending to unhedged borrowers, the link between the market risk ( fx rate movement ) and the credit risk of unhedged borrowers becomes strong. this component of the credit risk, as we know, has not been addressed satisfactorily in most of traditional risk management practices. besides, unlike other credit risk factors, it is not related to any specific industry, region or profession, but is nationwide and affects all unhedged borrowers regardless of their employment status, industry sector or town or province of their residence. so, there is a relatively high correlation between the fx rate movement and the movement of credit risk ( and the npls ) in the system. includes fx linked local currencylending bis central bankers ’ speeches third : if the bank capital is expressed in local currency and the bank assets are predominantly fx linked ( as is the case in serbia ), movement of fx rate ( even without any increase in the risk of assets ), influences capital adequacy. this produces potentially higher capital adequacy volatility than in the system with less fx lending. with the increase of credit risk driven by fx movements, the risk weighted assets – naturally – increase, too. and this additionally influences capital adequacy volatility. in such a system, obviously, there is an additional need to increase capital buffers because of the systemic inclination towards higher volatility in capital adequacy. fourth : there is obviously much less room in such a financial system for using the exchange rate as an automatic stabilizer for external shocks and potentially can impose higher burden on fx reserves of the country. what has serbia done so far? the national bank of serbia ( nbs ) officially initiated the so - called dinarization strategy in early 2010 with a goal to gradually increase the use of local currency – the dinar – throughout the financial system. this strategy relies on the involvement of all key stakeholders – the nbs, government, banking sector, corporates, and households. while inevitably most of the activities are undertaken by the nbs and the banking sector, increasing the awareness of the public and receiving an active support of the government are vital for the success of this strategy. in september 2011 european systemic risk board ( esrb ) issued a set