##bilities through quasi - commercial credits ( inter - enterprise indebtedness ). there is a scope, created by enterprises themselves, for offsetting the potential effects of monetary stringency on spending plans. a version of the equation of exchange suitable for transforming economies should therefore take into account on the left side not only money in the narrow and broader sense but also estimates of different kinds of quasi - credit. textbook knowledge says that the constancy, or at least the predictability of velocity either in income or in transaction terms, turns the equation of exchange into the quantity theory of money. at this point, last year ’ s speaker, dr tietmeyer, had again a more favourable position, because he could rely on the predictable and the longer - term change in the income velocity of the german mark. in the czech republic the velocity is neither constant nor reliably predictable yet. in the first stage of economic transformation the income velocity declined in line with the increasing transaction demand for money. only later on did velocity start to stabilise and recently we have observed some increase in velocity. last but not least, one must point out that, even in the quantity theory applied in advanced market economies, there is a certain “ black box ” connecting the quantity of money on the one hand and its effect on prices and quantities on the other. between a change in monetary aggregates and offsetting changes in other variables, there is a transmission mechanism, with its specific features determined by the institutional framework in which it operates. on the top of it some prices, like housing rents and energy price, are still under the control of the government and the process of deregulation cannot be perfectly anticipated due to the political implications. to specify the transmission mechanism and to open the “ black box ” means both to describe and analyse the ways in which money is created and how it influences real variables. these ways change through the evolution of new institutions in transforming economies. besides money supply targeting, operative targets have been used. as the operative target the monetary base ( currency plus minimum reserves plus free reserves ) was replaced in the second half of 1994 by bank reserves and a system was implemented for the daily prediction of liquidity management on the money market. since then the monetary base has been used as an indicator. in order to reduce the fluctuation of free reserves in the banking system and the volatility of interbank deposit market interest rates, the cnb shortened their maintenance cycle to 14 days commencing march 1st,

tolerance band. it is a fact that by placing inflation under control we have restored confidence in the monetary policy, which now makes it easier for us to achieve results. anchored inflation expectations enhance the efficiency of monetary policy and, by extension, the economy ’ s resilience to external shocks. in our february projection as well, inflation will remain stable in the coming period and will approach the target midpoint gradually, though it will most probably stay slightly below the midpoint until the end of the projection horizon. chart 1 inflation movements and inflation expectations of the financial sector chart 2 inflation projection ( y - o - y rates, in % ) ( y - o - y rates, in % ) 6y average inflation = 1. 9 % 6y average core inflation = 1. 7 % 2. 0 1. 9 1. 1 - 1 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 cpi core inflation * sources : sors, nbs calculation and bloomberg. * cpi excluding food, energy, alcohol and cigarettes. inflation expectations 12 3 12 3 12 3 12 3 - 2 source : nbs. acceleration of economic growth in serbia is led by investment, exports and sustainable consumption. the economic growth in 2019 exceeded our initial projections, which we revised upwards in the course of the year. according to our latest estimate, it amounted to 4. 2 %. economic growth accelerated significantly in h2, reaching, in our estimate, 6. 1 % y - o - y in the last quarter. in the past half - decade, serbia has been characterised precisely by the growth led by investments. their impact on economic activity is unambiguously evidenced by the data on fixed investment growth at an average annual rate of around 10 % during this period, whereby their share in gdp increased to around 24 %. let me reiterate that fixed investments increased cumulatively in the past two years by close to 35 %, accounting for three quarters of serbia ’ s economic growth. an increase in their share to around 24. 5 % of gdp is expected this year as well, guided by continued implementation of infrastructure projects and private sector investment. chart 3 imf gdp growth projection for 2019 chart 7 fdi structure by sector ( in % ) ( in % ) april 2018 otober 2018 april 2019 october 2019 actual 2005 – 2008. euro area 2009 – 2012. serbia sources : imf and nbs estimate. source : nbs. 2018 – 2019. 2013 – 2017. construction and real estate finance