s inflation to be at the projected single - digit level, a host of “ armchair critics ” rushed to disprove this, proffering instead their own pessimistic forecasts of end2006 inflation. however, we have not allowed ourselves to be intimidated by such criticisms, and we never will. instead, we pursued a responsible, restrictive monetary policy, and, as a result, managed to substantially topple inflation, so that at the end of the year it should attain the projected single - digit rate of growth. another important task facing the national bank of serbia is to completely restore public trust in the dinar and convince citizens that savings in the domestic currency represent the most profitable form of savings, that it is safest to perform financial transactions in dinars and that the purchasing power of the dinar is the best measure of their real standard. in other words, we need to get it across to the public that the time of constant “ switching ” from dinars to euros and vice versa is a bad reflex from the past, which today can only cause losses. the national bank will be successful in this as well, since it has always accomplished all its objectives. this new modern building incorporating state - of - the - art technological solutions has enabled the employees of the national bank to step into the 21st century physically as well, providing them with a working environment that may earn them the envy of even their colleagues from countries more developed than serbia. this however also means that in our work we need to observe the standards of these more developed countries, and that transition has brought with it yet another rule – we must do a good and responsible job before we get rewarded. national bank ’ s activities in the part of the financial system coming under its legal remit, as well its efforts on its own transformation, have shown and proven that the central bank has been the engine of transition over the past several years. the banking sector is already practically in the european union, as most of it comprises banks that have come from european union countries. our job, however, is not over yet, and we in the national bank are already working very intensively on tackling what should be the key economic challenge in the next phase of transition : we do not want to be alone in the european union ; we want the entire serbia to enter it along with us. for us this is neither a political nor a pre - electoral platitude ; rather than this, it is a responsible task, and

to substantially expand their lending to households. by contrast, bank credit growth to the corporate sector has lagged behind. this can be partly explained by the fact that an important share of investment by the non - financial corporate sector has been financed by retained earnings and foreign capital, including credit from banks in other countries and foreign direct investment. another striking – and potentially worrying – feature of credit growth in some of the new member states is the high share of foreign currency - denominated loans. these loans are mostly euro - denominated, although loans in other currencies have also been gaining in importance recently. they have typically been granted to non - financial corporations, though also to households in the baltic countries and poland. borrowing in foreign currency has been driven by lower borrowing costs and stimulated by the financial liberalisation in some countries prior to eu entry. the majority of foreign currency loans are held by larger multinational firms, which generate the greater part of their revenues in foreign currency, and can therefore also be considered as a hedging instrument. in general, borrowing in foreign 3 / 7 currency has been more widespread in countries with fixed exchange rate regimes or exchange rate targets, particularly the baltic countries. nevertheless, the external net liability position of the banking sectors of most central and eastern european countries continues to be limited, with the exception of estonia and latvia, where the external net liability positions reached levels corresponding to 23 % and 17 % of gdp respectively at the end of 2004. iv. house prices as you are well aware from the latvian experience, rapid credit growth has gone hand in hand with strong increases in house prices, especially in certain segments of the housing market, such as apartments in major cities. that said, the picture is quite diverse across countries, and it is difficult to discern general patterns. some countries, including the baltic countries, have experienced double - digit increases in house prices, whereas in others, for example the czech republic, house price developments have been more moderate. in general, however, house prices in many new member states have risen more strongly in recent years than the average in the euro area, albeit admittedly from a much lower base. moreover, housing construction is picking up throughout the region, reflecting buoyant housing demand. of course, property prices have also increased at a fast pace over the past few years in several euro area countries, as well as in other countries around the world, notably the united states and the united kingdom. so this phenomenon is not characteristic only of