19 / 05 / 2021 governor ’ s speech at the presentation of the inflation report – may 2021 ladies and gentlemen, esteemed members of the press, dear colleagues, allow me to bid you welcome to the presentation of the may inflation report after more than a year, with a sincere wish that as of august we return to our usual way of holding press conferences and answering all your questions live. this time again, we shall present to you the latest macroeconomic developments, our new macroeconomic projections, as well as monetary policy decisions in the period since the previous report. as you all know, behind us is the period during which we faced unprecedented health and economic challenges. in 2020 most advanced economies experienced economic downturns multiple times more severe than in the last global economic crisis, which negatively affected the labour market and other economic indicators in many countries. although today much more integrated in global production and trade chains, serbia – owing to the responsible conduct of economic policy in the past period and coordinated and timely measures of the nbs and the government – managed to minimise the economic fallout from the pandemic. not only have we preserved the existing production capacities, but we also built the new ones, and we continued with our investment cycle, launched in 2015. we thus reduced the fall in gdp to only 1 % in 2020, and we managed to reach its pre - crisis level already in q1 this year – a quarter earlier than we expected. “ what were the key preconditions for such a result? ”, is the question we often receive both from your colleagues and international financial institutions and the professional public. we answer this question always in the same way : the most important factor, which is most frequently and most quickly forgotten and is often taken for granted, is the preservation of macroeconomic and financial stability at all costs, underpinned by the relative stability of the exchange rate. owing to this, we managed to do what was the most important – we prevented a major fall in business and consumer confidence during the first wave of the pandemic, and thereafter we ensured that confidence be maintained at a high level. as a result, we achieved the pre - crisis level of industrial production and exports already in q3 2020, when we were assured that serbia would be one of the rare countries capable of truly achieving a v - shaped economic recovery. despite numerous shocks emanating from the international environment and from the changed conditions of doing business and spending in serbia, inflation remained firmly under control

on this issue, but this concern has receded recently. lending practices have been tightened considerably and many lenders have become quite risk averse. the demand for credit has also slowed due to the changed dynamics of the housing market and slower income growth. so the risks on this front look to be less than they were previously. this brings me to the second question : are interest rates going to be reduced further? the answer here is that the board has not yet made a decision, but it is not unreasonable to expect a lower cash rate. our latest set of forecasts were prepared on the assumption that the cash rate would follow the path implied by market pricing, which was for the cash rate to be around 1 per cent by the end of the year. there are, of course, a range of other possible scenarios and much will depend on how the evidence evolves, especially on the labour market. if you accept the argument that a sustainably lower rate of unemployment in australia is achievable, the question that we should all be thinking about is : how do we get there? it is possible that the current policy settings will be enough – that we just need to be patient. but it is also possible that the current policy settings will leave us short. given this, the possibility of lower interest rates remains on the table. monetary policy does have an important role to play and we have the capacity to play that role if needed. in saying that, i also want to recognise that monetary policy is not the only option. there are certain downsides from relying just on monetary policy and there are limitations on what, realistically, can be achieved. so, as a country, we should also be looking at other options to reduce unemployment. one option is for fiscal support, including through spending on infrastructure. this spending not only adds to demand in the economy, but it also adds to the economy ’ s productive capacity. so it works on both the demand and supply side. another option is structural policies that support firms expanding, investing, innovating and employing people. all three options are worth thinking about. from my perspective, the best option is the third one – structural policies that support firms expanding, investing, innovating and employing people. a strong dynamic business sector is the best way of creating jobs. structural policies not only help with job creation, but they can also help drive the productivity growth that is the main source of improvement in our living standards. so, as a country,