of financial and foreign exchange markets? ( slide 5 ) the first and perhaps the most fundamental reason explaining why we believe that the reduction of inflation is so important is the following. according to public opinion polls, for about 70 % of russians the inflation not only remains the number one problem, but it is even becoming more acute. on these slides you see that the value of all other parameters and of all other problems that worry the russians is going down, while the significance of inflation goes up. this is, perhaps, one of the most disturbing factors. high inflation erodes salaries and pensions, depreciates savings. in order to stop people being afraid of saving, to make them confident of their financial future and able of conducting organised savings ( organised savings create conditions for long - term investments and, consequently, for economic growth ), we believe that it is critically important to pursue a policy aimed at reducing the inflation. now there are many concerns, and i would say these are justified concerns, about the problem of expensive loans in the russian economy. it is true that interest rates on loans, especially for investment purposes, are high. but we should understand that, as a rule, it is the inflation that sets the lower limit for interest rates on deposits and loans. why? because neither households no businesses are inclined to bring their savings to banks, if the interest rate is not as high as the inflation. in turn, the banks, being financial intermediaries, do not provide loans at rates lower than the cost of funds raised from households and businesses. and our survey of banks showed that when banks are asked about the key rate, in particular, whether they are ready to reduce their corporate lending rates in case the bank of russia reduces the key rate, banks respond in the negative, because there is a problem of excessive outstanding borrowings of enterprises in some industries and another problem of bis central bankers ’ speeches high risks. and, of course, interest rates on loans can only be reduced after the reduction of inflation. however, this is not enough, it is important to conduct changes in the real sector itself, it is necessary to reduce the risks of borrowing in order to bring down lending rates. i need three minutes more, please... there should be a selection of efficient projects, competition for efficient projects, and the rates reduction based on lowered inflation, which will allow the financing of investment projects. ( slide 6 ) it is quite obvious that under the influence of unforeseen external

term rates in the economy depend on inflation expectations and expectations with regard to government finance sustainability. the ‘ risk - free ’ is a key word describing the relationship between the financial system and the government debt. the latter may perform all these functions only if the state budget is balanced in the medium and long terms and the government may honour its obligations without resorting to defaults and the printing press. budget discipline impacts the central bank ’ s ability to function as an economic and financial stabiliser amid economic shocks. you may find a lot of examples in the russian and international history. the russian policy between the end of the 19th century and the start of the first world war serves as a model of how the balanced fiscal policy allowed the government to preserve national currency stability, refrain from increasing taxes, and stabilise debt in per cent of gdp at the levels acceptable to the market. at that time a sustainable economic growth persisted despite the lost war with japan and the revolutionary upheavals. ( vice versa, uncontrolled budget deficit growth and in effect the breakdown of government finance during the first world war led to an economic collapse and triggered the 1917 revolution. ) let ’ s turn to more contemporary examples. the development of the so - called emerging markets, i. e. the financial markets of developing countries, started following the state budgets ’ stabilisation and inflation reduction. market uncertainty about fiscal stability may cause shocks bis central bankers ’ speeches in the financial and fx markets. both the situation in brazil in recent months and the russian crisis of 1998 can serve as an example. moreover, market concerns over the consistency of the bank of russia ’ s policy and our adherence to announced goals, which we felt in 2014 and to a lesser extent in 2015, were also linked to the budget. all the theories of the ruble exchange rate pegged to a certain ruble price of oil originated from considerations of budget balance and concerns that the central bank would intentionally generate inflation to finance budget liabilities. that is the bank of russia was suspected of being ready to give up inflation targeting for the sake of budget replenishment. it took us many months to persuade the market of the opposite. does russia have a potential to build up government debt? yes, it does, in theory, since our country may boast one of the lowest levels of government debt. consequently, the development of the government debt market could be conducive to the development of the financial system as a whole. anyway i would