’ perceptions of structural, supply - side differences, and their implications for relative future corporate earnings growth, than by relative macroeconomic policies. no doubt at some point such perceptions will change - or the anticipated differences in future earnings growth be discounted by the change in asset prices, including the effect of exchange rates. there are some tentative signs that this may be beginning to happen. but in the meantime it is not at all clear that there is much that we could do - even if we wanted to - to weaken sterling against the euro by marginal changes in short - term interest rates. as it is our interest rate differential over the euro zone has halved since the euro started, while our exchange rate against the euro has appreciated by around 15 %. we do already, of course, take full account of the exchange rate - and other prices - in both our forecasts and our policy decisions. indeed, it was partly to avoid pushing sterling higher and so aggravating the imbalance within the economy, when we were not wholly convinced that we needed to take that risk in order to achieve the inflation target, that the committee refrained from further monetary tightening over the past eight months. but looking ahead the risks and uncertainties are such that it would be unrealistic to suppose that we can altogether exclude the need for further tightening at some point. leaving on one side possible, though not necessarily likely, international developments outside our control - a hard landing in the us, for example, or a precipitate realignment of exchange rates, or a further spike in the oil price - there are two major uncertainties. the first is the familiar uncertainty relating to the path of overall demand growth. on almost any basis, we start from a position in which the economy as a whole is operating close to capacity. that is reflected in the evident tightness of the labour market, including increasing evidence of skills shortages. if we are to avoid a potentially sharp reversal in earnings growth and accelerating inflation, we need to see a slowdown in the rate of domestic private sector demand growth to accommodate not only the stabilisation of our external current account balance but also the public sector expenditure growth which the chancellor has already announced, not to mention whatever he may be planning to announce tomorrow. there are signs that this slowdown in private sector demand growth may be beginning to happen, but that is certainly not yet assured - and over - generous tax cuts would not help. i must tell you that i am surprised by the

radovan jelasic : the impact of the crisis on serbia ’ s financial sector speech by mr radovan jelasic, governor of the national bank of serbia, at the " conference on the future of financial markets of central and south east europe ", sarajevo, 23 october 2008. * * * “ we are acting with unprecedented speed taking unprecedented measures that we never thought would be necessary ”, said the us treasury secretary, mr. paulson on 14 october this year – and the world is slowly beginning to understand the full meaning of his words. the government has returned in style, replacing banks as lender but also as guarantor, and even owner of financial institutions. and, in a matter of days, circumstances have changed so much that such moves are not only approved, but even welcomed and applauded! and while we know that, after these turbulences in the global financial market, nothing will be the same, all we know about the crisis itself is that it has reached one of its many peaks over the past few weeks and that its depth and duration cannot be foreseen. today, i would like to talk about the impact of these unprecedented challenges on the financial sector of serbia, focusing in particular on : 1. effects so far 2. likely future course of the crisis 3. long - term effects 1. the effects on the serbian banking system are already evident, as private individuals have lost no time in responding to external shocks. fortunately, as our citizens have long ago learnt that it is not clever to wait for the unhurried and overly optimistic politicians to explain what the future has in store, the following trend has emerged since q2 : а ) receding volume of borrowing by households, with the exception of mortgage loans, b ) much pricier new loans, c ) notable slowdown in external borrowing by banks. in several months, we will feel nostalgia for the “ good old times ” when we, the central bankers, strove to suppress the credit boom by all means available and with different success. but where central banks have failed, financial crisis has succeeded, by force. and to be honest, commercial banks did go a step too far : a ) they advertised borrowing and borrowing alone, with hardly any mention of savings ; b ) products were offered by banks, but also by agents, merchants, etc. ; c ) telephone calls to potential clients became a usual practice, luring customers into yet another cash credit or credit card. however