in the euro area may, in addition to demand for our export products, also impact the country risk premium movements. under the latest bis central bankers ’ speeches indicators, the economic downturn in the euro area in 2012 may be softer than the assumed 0. 5 %, though deviations are possible in both directions. fiscal policy will also have a significant impact on the perception of country risk. mounting public debt and a more significant deviation of the 2012 budget from the framework agreed earlier with the imf may have inflationary consequences through rising risk premium, depreciation pressures and higher demand, which would leave less scope for monetary policy easing. * * * in response to subsiding inflationary pressures, the national bank of serbia has cut the key policy rate over the last nine months by total 300 basis points to its current level of 9. 5 %. in february, the key policy rate was left unchanged. the future path of the key policy rate will depend on materialisation of inflation factors, while developments in the international environment and fiscal policy at home remain the key risks. we wish to remind that the decline in inflation to around the lower bound of the target tolerance band, which may happen in some months of the first half of the year, would be only temporary and, as such, would not be the reason for monetary policy response. given the time lag in reaction of the key policy rate on inflation, monetary policy should not respond to temporary factors, but to factors with a medium - term effect on inflation. chart 18 inflation projection ( y - o - y rates, in % ) chart 17 short - term inflation projection ( y - o - y rates, in % ) projection 12 3 * * 12 3 12 3 12 3 * ladies and gentlemen, recent developments in some countries in the region show that in the current situation financial markets are highly sensitive to any disruption in macroeconomic and financial stability. therefore, the best way for the government and the central bank to contribute to the improvement in the economic environment is to pursue a policy which ensures long - term macroeconomic stability. such policy implies a sustainable level of public debt, price stability over the medium term, and a stable and resilient financial system. any attempt at “ stimulating ” the economy in an unsustainable way could jeopardise the achievement of the above objectives, which would elevate the country risk and increase the costs of borrowing, exacerbate the business environment, and ultimately, inflict damage

radovan jelasic : provision of credits to small and medium sized enterprises in serbia speech by mr radovan jelasic, governor of the national bank of serbia, at the roundtable organized by “ ekonomist ” magazine on provision of credits to small and medium sized enterprises in serbia, held at the national bank of serbia, belgrade, 13 june 2007. * * * ladies and gentlemen, allow me to welcome you on behalf of the national bank of serbia on the occasion of conference on medium and small size enterprise crediting in serbia. i would like to discuss two related subjects – stability of prices, i. e. inflation, and the role of the nbs in providing credits to finance small and medium sized enterprises. stability of prices and business environment represent one of the key conditions for the success of economy as a whole and particularly so for the success of small and medium - sized enterprises. in contrast to large enterprises that have “ connections ”, access to insider information and are more than aware of their economic and political power, medium and small sized enterprises are usually treated as an ornament, more as a social than economic category – and that serves them no purpose. as for stability in prices, it is currently at the level most people do not remember ever having seen before because, back than, they were either not yet born or were not really very much interested in such matters at all. inflation today, after 44 years to the day, matches the level recorded in 1963. in may this year, year - on - year, the rate of headline inflation equalled 4. 4 % and core inflation reached 3. o %. at the same time, our economy has been growing at the rate of around 7 % ( first quarter 2007 over the same period a year earlier ) and displaying a greater abundance and variety of cheap credits than seen in serbia in a long time, the exchange rate for the dinar has been floating freely for over three months now without any interventions from the nbs, and our foreign exchange reserves have grown in excess of us $ 12. 2 billion. stability seems to have brought about a number of unexpected effects of “ operating in a normal business environment ”, which almost whole of our economy has kind of grown unaccustomed to in the course of these last 44 years, such as the facts that : • market implies competition, glorifies success and puts a persistent pressure on increase in productivity. one can no longer get by with phrases like :