national bank of serbia speech at the presentation of the inflation report – february 2018 dr jorgovanka tabakovic, governor belgrade, 14 february 2018 ladies and gentlemen, dear media representatives, esteemed colleagues, welcome to the presentation of the february inflation report. we will present to you the current macroeconomic developments, our new projections and monetary policy decisions. inflation is on target, credit rating was upgraded, the country risk premium declined, the government budget is in a surplus, the cost of dinar lending is going down, and non - performing loans are on a sharp downward trajectory at the start, i wish to give a brief overview of last year, i. e. i will present the domestic macroeconomic developments that we believe marked 2017 and that are important from the aspect of the corporate sector, citizens, the government, all of us. i would like to open this conference by reminding us of an important decision from late 2016 – to lower the inflation target by 1 percentage point, to 3±1. 5 %, starting from january 2017. that we were realistic in setting the target and consistent in its implementation is confirmed by the fact that inflation moved within the bounds of the lower target corridor throughout the year, and stood at the 3 % target both on average and in december. in 2017, three rating agencies upgraded serbia ’ s credit rating and the country risk premium fell below 100 basis points, to its lowest level. concretely, for all of us, this means the possibility of using both domestic and external sources of funding under more favourable conditions. the government budget recorded a surplus of 1. 2 % of gdp, for the first time since 2005. the share of public debt in gdp fell by 10. 4 percentage points, thus speedily getting closer to the 60 % boundary. the eighth review of the arrangement with the international monetary fund was successfully concluded, with the assessment that progress achieved in numerous fields outperformed the defined criteria. interest rates on dinar corporate and household borrowing declined further in 2017, as did the rates on government borrowing. lower interest expenses certainly contributed, among other factors, to an improved fiscal performance, which continues into this year as well. i wish to remind you that at the auction of ten - year dinar securities of the republic of serbia held on 6 february, demand outstripped supply almost five and a half times. securities were sold at a 5. 35 % rate, down by 7. 64 percentage points relative to the same - maturity auction of october

) 2018 ( new projection ) 2019 ( new projection ) 6, 6 2, 2 ( in index points ) ( in % ) 6, 4 2, 0 2, 7 2, 5 2, 3 2, 0 1, 7 1, 4 1, 1 - 1 1, 5 - 2 china russia usa italy germany euro area gdp, s - a ( lhs ) * eurocoin ( lhs ) eurozone composite pmi ( rhs ) - 3 i iii i iii i iii i iii i iii i iii i iii i iii i iii i iii 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 sources : eurostat, markit group and banca d ’ italia. sources : imf weo ( october 2017 ) and imf weo update ( january 2018 ). * eurostat preliminary estimate for q4 2017. both supply - side factors and expectations that demand will rise more rapidly with global growth acceleration. in january, the brent oil price exceeded usd 70 per barrel, which is its highest level since december 2014. owing to higher energy prices, global inflation is somewhat higher than in the earlier period, but still no stronger inflationary pressures are expected in the majority of countries. in addition, based on oil futures that we use in our projection, we do not expect further growth in global oil prices. of course, deviations are possible both for oil prices and prices of other primary commodities. chart 5 oil and copper price movements ( average monthly prices, in usd ) chart 6 prices of primary agricultural commodities and their futures 10. 000 9. 000 8. 000 ( usd / t ) 7. 000 6. 000 5. 000 4. 000 3. 000 2. 000 1 5 9 1 5 9 1 5 9 1 5 9 1 5 9 1 5 9 1 5 9 1 5 9 1 5 9 2011 2012 2013 2014 2015 2016 2017 2018 2019 price of brent oil per barrel ( lhs ) brent oil futures ( lhs ) price of copper per ton ( rhs ) source : bloomberg. copper futures ( rhs ) 1 5 9 1 5 9 1 5 9 1 5 9 1 5 9 1 5 9 1 5 9 1 5 9 1 5 9 1 5 9 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 corn wheat source : cbot - chicago boаrd of trade. also, the leading central banks continue to pursue diverging monetary policies due to different economic cycle phases of their economies, while financial conditions remain favourable. thus,