eli m remolona : rising to the challenge - the bangko sentral ng pilipinas speech by mr eli m remolona, jr, governor of bangko sentral ng pilipinas ( bsp, the central bank of the philippines ), at the philippine economic briefing, laoag, 14 august 2023. * * * congressman angelo marcos barba, vice governor cecilia araneta marcos, batac city mayor albert chua, laoag city mayor michael marcos keon, guests from various sectors, partners in nation - building, naimbag a bigat! i am happy to be in laoag for the first post - state of the nation address economic briefing. i would like to talk about just three things : inflation, exchange rate pressures, [ and ] our banking system, including its role in sustainability. let me start by discussing the recent trend in inflation. the blue line that you can see is the inflation rate for headline inflation. this is the part of inflation that is driven more by supply - side factors, and this is the part that the central bank has less control over. the red line is inflation based on the core cpi [ consumer price index ], which excludes the volatile components of prices, namely food and energy. this is the one that is more easily subject to monetary policy. from the peak of 8. 7 percent in january, headline inflation slowed to 4. 7 percent in july. this is due to improving domestic food supply conditions and lower global oil prices. but core inflation has remained high at 6. 7 percent, although it has started to decline. that decline is due mainly to monetary policy. so, how did we bring about this inflation downtrend? the bangko sentral ng pilipinas ( bsp ) responded to inflation by aggressively raising its policy rate. as of today, we have raised the policy rate by [ a cumulative ] 425 basis points ( bps ). in the last two meetings, we have paused. we are reassessing the situation. that is where we stand. we will go where the data leads us, but sometimes, the data does not seem to know where to go. the good news is that inflation expectations are still well - anchored. the green line in the picture shows inflation expectations for this year have evolved. the blue line is more important. it is about [ inflation ] expectations for 2024. the red line is about 2025. they are very well -

1. 58 bn net. this also gave an additional boost to the country ’ s fx reserves which at end4 december 2018 came at eur 11. 3 bn. at end - june this year, fx reserves reached eur 12. 1 bn in gross terms, or over eur 10 bn in net terms, which is the highest level on record. such a high level of fx reserves ensures security not only in conditions of stability, but also in case of potential external shocks. serbia ’ s banking sector was adequately capitalised, highly liquid and profitable throughout 2018 as well, with indicators standing high above the regulatory minimums. the dominant role among the sources of funding was that of domestic deposits, which reduces banks ’ dependence on external sources of funding and their exposure to risks from the international environment. in addition, the results of macroprudential stress tests, which we continued to regularly conduct in 2018, confirm that banking sector capitalisation and liquidity would not be jeopardised even in case of extremely negative developments. ( % ) expected liquidity ratio for the banking sector by stress scenario * 2. 5 expected capital adequacy ratio by stress scenario * 2. 10 2. 0 1. 65 basel ii basel iii regulatory minimum 1. 52 1. 5 1. 25 regulatory minimum 1. 0 i iii i iii i iii i iii i iii i iii i iii i iii i iii i iii i iii 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 baseline * nbs estimation. source : nbs. moderate scenario worst case scenario 0. 5 0. 0 initial state deja vu spillover worst case scenario * nbs estimation. source : nbs. at our previous presentations of the annual financial stability report, we underscored the share of non - performing loans as a systemic risk. this is also how we tackled the issue – in a systemic way. as a result, the share of non - performing loans in total banking sector loans was lowered to 5. 7 % at end - 2018 and to 5. 21 % in june this year. the ratio of non - performing loans is smaller by around 17 pp and their stock by around 70 % compared to the period when the serbian government and the national bank of serbia adopted the npl resolution strategy. at the same time, the current ratio of non - performing loans is the lowest on record. being proactive, last year we also adopted regulatory measures to curb risks potentially arising from unsecured non -