national bank of serbia governor ’ s opening remarks at the presentation of the inflation report – may 2017 dr jorgovanka tabakovic, governor belgrade, 19 may 2017 ladies and gentlemen, dear colleagues, welcome to the presentation of the may inflation report. as always, we will give an overview of the current monetary and macroeconomic developments and our expectations for this and the following year. inflation within the target tolerance band first, i would like to underline that since the beginning of 2017, inflation has moved within the bounds of the new, lower target tolerance band. we anticipated that inflation would move within the target tolerance band this year and announced this trend at presentations of the inflation report last year as well as at the previous, february presentation. as in other countries, inflation in this period was affected by the recovery in global oil prices in the latter half of 2016 as was expected ; however, adverse weather conditions early this year resulted in a higher than expected increase in the prices of fruit, vegetables and firewood. that this is an impact of one - off factors on inflation is suggested by low and relatively stable core inflation, which hovered at around 2 % year - on - year. according to our latest projection, over the two - year horizon covered by the projection we expect inflation to move within the bounds of the target tolerance band of 3±1. 5 %. you will hear a more detailed elaboration on the projection of inflation and its factors later on in the conference. i would like to take a look at developments in the international environment which for quite a while have posed a challenge to serbia, as well as to all small and open economies, which is why it is important that we preserve macroeconomic stability and improve our business ambience. in the prior period, the international environment was marked by uncertainty – uncertainty regarding the pace of global recovery, uncertainty regarding the character of monetary policies of the leading central banks and uncertainty in terms of movements in the prices of primary commodities, notably oil. the uncertainty in the international financial market originates primarily from the diverging monetary policies pursued by the fed and the european central bank. taking stock of the us economy, the fed continued to raise its fed funds rate in 2017. by contrast, the european central bank ’ s decision to extend the quantitative easing programme at least until the end of 2017 will mitigate the negative effects of the fed ’ s monetary policy normalisation. these decisions affect not only their economies, but also global markets and capital flows to emerging

about : masaaki shirakawa ( bank of japan ), sergey ignatiev ( bank of russia ) and miguel fernandez ordonez ( bank of spain ). when the recent financial crises erupted in 2008, there was an emerging consensus in the world on the good strategies for central banks. this consensus emphasized the objective of price stability, which could be pursued by a suitably informed interest rate policy and the careful management of inflation expectations. now, in the current situation, some new ( or old ) questions have been raised : for instance, how should central banks relate to the objective of financial stability without compromising their commitment to price stability? tomorrow, we will start with a monetary policy session presided over by the new president of the bundesbank, jens weidmann. professor carl walsh of the university of california at santa cruz will be the main speaker in that session, and three central bank governors – athanasios orphanides, from cyprus, mark carney from canada and agustin carstens from mexico – will comment. the globalization of financial markets is not a new thing in itself, but during the most recent wave of globalization the volume of finance channelled through international financial markets has grown tremendously. at the same time, the stability of national economies has become absolutely dependent on the stability of the international financial markets. it is clear, then, that the world needs a global approach to financial stability. we are seeking a new balance between market discipline, transparency and stricter regulation of the conduct of financial institutions and market participants. in our second session tomorrow a panel will deal with some of the financial market issues. three well known governors will participate in the panel : stefan ingves from sweden, yves mersch from luxembourg and nout wellink from the netherlands, as well as a renowned researcher, professor bengt holmstrom of mit. the luncheon address will be given by governor mervyn king of the bank of england, who, among his other distinctions, holds an honorary degree from the university of helsinki. the world still faces tremendous gaps in living standards between countries, and opportunities gaps between generations in many countries. even in the advanced countries, the economic adjustment seems to be leaving large parts of the population, especially the young, with disappointingly few opportunities to realize their human potential. the narrowing of these gaps in living standards and opportunities requires economic growth. but it has to be growth which is consistent with the new divisions of labour in the world economy, and which is sustainable in