bank raises the policy rate and thus suppresses both inflation and demand, thereby reducing the risk of the economy overheating. but if inflation rises as a result of a negative supply shock, the problem is more complex. if most people assume that the effect on inflation is transitory, the problem does not need to be so great. the central bank can then simply wait until inflation falls back again. however, one risk that is always present is that price impulses spread to other prices and start to affect economic agents ’ expectations. these may then expect inflation to remain high, or even rise further. the signs of such second - round effects have now begun to increase in many economies. this creates a tricky balancing act for monetary policy : at the same time as one wants to maintain confidence in the inflation target and prevent inflation from becoming entrenched at a high level, one wants to avoid pursuing a policy so tight that the economy enters a recession. as we saw, this was what happened after the first world war, although the motive then was to return to the previous price level rather than bring down inflation. to be a little drastic, one can say that the task facing the central banks is to avoid ‘ the great inflation 2. 0 ’, and to do so at the lowest possible cost in terms of lower production and higher unemployment. the conditions are better than before i intend to stick my neck out a bit here and say that the conditions for coping with this balancing act are quite good for sweden and at least considerably better than they were when inflation began to rise in the mid - 1970s. there are several reasons for this. none of these are news, but it is still worth reminding ourselves of them. firstly, since 1993, we have had an inflation target in the swedish economy. during the most recent period of lastingly high inflation, the idea was that inflation would be kept down by means of the fixed exchange rate. the fixed exchange rate was expected to have a disciplinary effect on price - setting and wage - formation, as excessive inflation in relation to the rest of the world would lead to difficulties for the export industry and increased unemployment. however, as i have pointed out, this did not work very well. expressed in economist terms, there was no credible nominal anchor in the economy, that is, a clear, quantified benchmark for price - setting and wage - formation. today, we have one in the form of the inflation target. during the period of inflation targeting, long

, the country's fx reserves hit their record high of eur 21. 2 bn. last year, the national bank bought eur 1 bn net in the interbank fx market. since the start of this year, we have bought additional eur 435 mn net. confidence in the financial system has also been preserved, as confirmed by the continued rise in total deposits in banks, which in late 2022 exceeded the 2019 figure by over 40 %. the npl share in total loans was reduced to a record low of 3 % at end - 2022. during the three crisis years – from 2020 to 2022, serbia was recording real economic growth of around 9 %. this year, real growth is expected to equal between 2 % and 3 % and gdp per capita to reach around eur 10, 000 for the first time. the unemployment rate is at its lowest, and private sector formal employment at its highest – close to 10 % above the pre - pandemic level. this means that 150, 000 more people are employed now than before the pandemic. in december, total average wage was higher by 36 %, while private sector wage exceeded the precrisis figure by as much as 46 %. we have also ensured conditions to attract a record high level of fdis, worth eur 4. 4 bn last year, i. e. 7. 1 % of gdp. stability and resilience of the domestic banking sector ladies and gentlemen, i began my address with the macroeconomic environment in which banks in serbia operate as trends in the financial industry always depend on real sector developments, and vice versa. good regulations and efficient supervision of financial institutions are also important. while some countries have a complicated supervision system and a huge problem of coordination among different supervisors, the banking sector supervisory function in serbia is exercised by a single institution – the national bank of serbia. the advantages of such organisation of the supervision system and the quality of supervision are reflected in a stable financial system. it is confirmed now as well – during the current developments in the international financial market – that the national bank of serbia is rightly cautious in easing its regulations. we do nothing " on request ". we do not fulfil anyone's wishes as we are guided by financial system security and the protection of interests of depositors and bank clients. this is our statutory objective and it is only in such way that we can best contribute to overall stability. that the nbs's approach is adequate