3. 8 percent and 3. 9 percent respectively ( 2. 8 percent in 2013 ) and inflation rose from 2. 9 percent in 2014 to 4. 8 percent in 2015. to face the external shock and the resulting drop in fiscal oil revenue, the government initiated a programme of spending rationalisation in 2015, notably through the prioritisation of investment projects. in 2016 fiscal consolidation further included a relatively low reduction in current expenditure ( - 3. 3 percent ) and a more substantial reduction in capital spending ( - 16 percent ), totalling a 9 percent reduction in public spending. furthermore, the 2016 budget includes an upward adjustment of the tax on energy products ( petroleum, diesel, electricity and gas ). this is aiming at reducing public finances ’ vulnerability to oil price decline and lies within the strategic objective of ensuring medium term fiscal sustainability. moving ahead, the gradual fiscal adjustment should also rely on increasing non - hydrocarbon revenue. 2. impact on financial stability like other central banks, the bank of algeria faced the need to strengthen the surveillance of systemic risk, particularly in relation to the volatility of hydrocarbon prices in international markets and the interconnectedness of financial institutions within the banking sector. to address these concerns, banking legislation, as amended in 2010, has extended the central bank ’ s mandate to include the objective of financial stability. with this amendment, the financial stability mandate becomes of equal importance to the price stability mandate. in practice, it is worth noting that the contribution of monetary policy to monetary and financial stability in algeria is crucial in view of the dominance of the banking sector in the financial system and its potentially important role in the development of financial intermediation. this contribution is of particular importance in the context of persistent excess liquidity in the money market since 2002. to strengthen the operational framework of financial stability, and following the introduction, in 2010, of new accounting rules of international standard, risk assessment rules with regard to new financial products and the introduction, in 2011, of new regulations regarding liquidity risk identification, measurement, management and control, the council of money and credit ( the monetary authority ) promulgated in 2014 a new prudential framework to ensure conformity of the prudential rules to the new basle norms and standards. within this new regulatory framework, the minimum tier one capital adequacy ratio is set at 9. 5 percent, exceeding the minimum ratio recommended by the basle committee, and the adequacy ratio, based on regulatory equity

is likely to increase to a level of over 50 percent in the fourth quarter of 2014. third, on the “ quality ” front, jgbs with all maturities, including 40 - year bonds, were made eligible for purchase. as a result, the average remaining maturity of the bank ’ s jgb purchases will more than double to about seven years. by working on interest rates across the yield curve, it is expected that the effects of the qqe on financial conditions and economic activity will be strengthened. in addition, in order to affect premiums of risk assets, purchases of exchange - traded funds ( etfs ) and japan real estate investment trusts ( j - reits ) were increased. assessment of the qqe to date the qqe has already started to exert effects. let me point to three favorable turns, as shown in chart 4. bis central bankers ’ speeches first, there has been a favorable turn in financial markets and corporate finance. as shown in chart 5, stock prices are rising. long - term interest rates, while once faced with increased volatility, have been almost flat recently despite a rise in interest rates overseas. also, in terms of corporate finance, bank lending has gradually been increasing its growth rate, and lending rates have been at historical low levels. second, there has been a favorable turn in the public ’ s expectations. consumer sentiment and business sentiment have improved markedly. many indicators suggest that inflation expectations have been picking up in the market, as well as among firms and households. a recent development in one such indicator is shown in chart 6. this development, together with low and stable nominal interest rates, has been effective in lowering real interest rates. the third favorable turn is in economic activity and prices, as shown in chart 7. private consumption remains resilient on the back of improved household sentiment and the wealth effect from the stock market rally. business fixed investment is showing signs of picking up, in line with improved business sentiment and corporate profits. the year - on - year rate of change in the cpi has turned positive, reflecting both improvement in the economy and the yen ’ s depreciation. ii. unconventional monetary policy, real interest rates, and natural rate of interest in this way, the bank ’ s qqe has already started to gradually exert effects. now, as in chart 8, let me next look at the transmission mechanism of the policy effects from the two perspectives of real interest rates and the natural rate of