stronger growth in our competitiveness. regardless of their structure, capital inflows have complicated the life of a policy maker in many ways. on a macroeconomic level, the reliance on foreign savings, especially when channeled into consumption, manifested in large current account deficits. they reached as much as 18 % of gdp before the crisis and their long - term viability was rightly questioned. the influx of capital into nascent financial markets with a low absorption capacity has led to periods of sharp appreciation and contributed to unnecessary large exchange rate volatility. such appreciation spells – such as the one in 2006 – also encouraged excessive foreign currency borrowing. but these macroeconomic phenomena were not the major problems per se. after all, exchange rate volatility is a key element of the inflation targeting regime, it prompts the development of hedging instruments, and facilitates de - euroization of the financial system. the moderate current account deficits could be partly just a flip side of high investment ratios that are needed for our catch - up process. there is no doubt large capital inflows are needed for growth to resume in the coming period. if the inflows are used wisely to increase the productive capacity – and especially so in manufacturing, the current account deficits should be self - corrective over long horizons, as many examples – also from the eastern europe – attest. investments in infrastructure are an example of how capital inflows can help increase the productivity capacity and raise long - term growth prospects. before the crisis, the major problem with capital inflows in serbia was the unbalanced risk sharing and mismatches involved, potentially jeopardizing the stability of our financial system. the catch - up potential is a long - term process requiring long - term financing. but a part of the financing was short - term, requiring a regular roll - over. furthermore, most of the financing came in a foreign currency, while most revenues are denominated in the local currency. unlike the popular wisdom, it is not a reckless risk behavior of foreign investors that put our economy at risk – it is the lack of it. the risks involved in the currency and maturity mismatches were not born by foreign investors, but by domestic businesses and partly by households. they suffered the most, when the capital flows dried up and the currency depreciated. many blame the fragility of the financial systems in emerging europe on the “ so called ” speculation or carry traders

jorgovanka tabakovic : annual financial stability report for 2015 speech given by dr jorgovanka tabakovic, governor of the national bank of serbia at the presentation of the annual financial stability report for 2015, belgrade, 27 july 2016. * * * ladies and gentlemen, esteemed members of the press and fellow economists, welcome to the presentation of the annual financial stability report for 2015. if we call last year ’ s presentation of this report history or our firstborn, then today ’ s press conference can be regarded as the start of tradition and continuation of good international practice. macroprudential policy or the policy of safeguarding financial stability has been the focus of almost all economic discussions since the outbreak of the global financial crisis. the national bank of serbia does not lag behind other central banks in this respect. quite to the contrary, we are keeping up with them. the depth of our analyses and the expert approach place us among the most efficient central banks in terms of achieving the financial stability mandate. we have been witnesses to turbulences in the international environment for quite some time already. the ripple effects of these turbulences did not by - pass serbia as an open and small economy. however, we did not stand by and wring our hands, waiting to be hit by the waves of uncertainty from different continents. in coordination with the government of the republic of serbia, we responded with timely action, carefully assessing the intensity of all influences. through synchronisation of monetary easing and consistent fiscal consolidation, we have maintained price stability, reduced external and internal imbalances significantly and improved further the conditions for sustainable economic growth. as a result, the key policy rate is at its historical low since the introduction of the inflation targeting regime and the fiscal deficit is at its lowest level since 2008. i will take the liberty of saying that the monetary policy easing of the national bank of serbia has paved the way for a sharp drop in interest rates on dinar loans in the last three years. to put this into numbers – from may 2013 until today, the key policy rate was cut 17 times by a total of 7. 75 pp to 4 %. that the interest rate channel is working in the dinar segment of the market is confirmed by the concurrent decline in interest rates on dinar loans to households and corporates by almost 10 pp to the lowest levels on record. interest rates on government dinar securities also declined. since november 2014 we have also reduced the fx required reserve ratios