in budapest about a month ago, on 19 january 2007, by jacques de larosiere, former managing director of the imf and ebrd president and former governor of the banque de france : stage one : before the 1980s, governments were convinced that there was a trade off between “ a little more inflation ” and less unemployment. this policy eventually led to double digit inflation in advanced economies and galloping inflation in a number of developing countries. high inflation was finally recognized as inimical to growth and socially disruptive. in 1979 - 1980, the game of systematically seeking employment at the expense of price stability came to an end. the whole process had entailed high economic and social costs ; stage two : in 1980s and 1990s, monetary policy managed to reduce inflation. most central banks were gradually made independent from governments and acquired new credibility. this was the period of the triumph of central bankers. us inflation came down from 13 % in 1979 - 1980 to 2. 2 % in 1999. ” inflation has been a part of our lives for the last thirty years and it has become practically impossible to imagine living without it. it is always on our minds – when buying things or planning our future, when borrowing or giving presents – and it would feel strange not to count with the increase in prices! because it has been with us for over 3 decades, an abnormal situation has become normal and it is now feels abnormal that there is no inflation. true, if there is inflation, it is easier to do the budgeting, to plan, to breathe, etc. because if your prices are changing all the time and your exchange rate is unstable, you will never really be comparable with the rest of the world, as today ’ s calculation will simply not apply tomorrow, let alone the day after. the same is true of my role as the nbs governor : my job would be far easier if i chose to cover up my own and the institution ’ s inefficiency by means of inflation and currency depreciation. but times are changing, for, let me remind you, serbia is still in the process of transition and it will take some time yet to complete! if nothing else, the stability of prices and currency has at least impelled many to come up with much more creative “ explanations ” for price rises. only a year ago, the increase in prices of milk, cable tv and public transport services was blamed on the exchange rate … in the course of the past year, the

of the ccb, decided by the federal council in january 2014. since then, imbalances have remained almost unchanged. on the one hand, momentum on the mortgage market slowed somewhat during the first quarter of 2014. on the other, during the same period, the rate of real estate price growth remained similar to that observed over the last few quarters, only slightly exceeding the growth of fundamental factors. from a financial stability perspective, these are welcome developments. experience shows, however, that short - term changes in momentum do not necessarily imply a change in trend. given the persistence of the low interest rate environment, banks and authorities should remain alert and take the necessary steps to keep risks for financial stability in check. first, measures giving banks stronger incentives to pursue a more cautious mortgage lending policy should be considered. such measures should target both the owner - occupied residential property and the residential investment property segments. efforts should now be directed towards preparing regulatory measures that could be implemented swiftly should momentum pick up again on the mortgage and residential real estate markets. second, interest rate risk exposure in the banking book should be appropriately backed with capital. under the aegis of the basel committee on banking supervision, international standards on capital requirements for interest rate risk are currently being developed. given the significance of this risk factor, domestically focused banks should ensure they adopt a prudent stance towards measuring and managing this risk. in this context, the snb fully supports finma ’ s efforts to ensure that risk - taking by individual banks is reduced or backed by specific capital charges whenever the risk exposure is deemed exceptionally large by historical or industry standards. in parallel with these measures, the snb will continue to monitor developments on the mortgage and real estate markets closely, and will reassess the need for an adjustment to the ccb on a regular basis. bis central bankers ’ speeches