Distinguished Members of the Press,  BIS Review 67/2009  5  As I mentioned at the beginning of my speech, economic stagnation, which grew more widespread in late 2008 and the first quarter of 2009, accompanied by the fall in international commodity prices has led to a significant decline in global inflation. As illustrated in the slide, the downward trend in consumer price inflation in developed markets became more pronounced, while inflation in emerging markets lost ground significantly. Annual consumer price inflation in developed markets declined from 4.4 percent in July 2008 to 0.7 percent in February 2009. Concurrently, consumer price inflation in emerging economies dropped from 9.9 percent to 6.4 percent as of the same period (Figure 8 and 9). Figure 8: Consumer Price Inflation in Figure 9: Consumer Price Inflation in Developed Markets Emerging Markets (Annual Percentage Change)  (Annual Percentage Change)  6  10 8  4  6 2  4  2. 1208  0708  0208  0907  0407  1106  0106  1208  0708  0208  0907  0407  1106  0606  0106  Source: Bloomberg, CBT. 0606  2  0  Source: Bloomberg, CBT. Monetary policy response  Distinguished Members of the Press, Dear Guests, After making brief remarks on inflation developments, now I would like touch on the policies pursued by the Central Bank in this period.
The very low inflation is prompting some to argue that policy normalization may have to wait still, but perverse effects need not be underplayed. But it is likely that policy normalization – understood as a return to positive real policy rates, will be quite a time consuming process, particularly in Europe. Major risks persist, or even grow, in the global economy; they are due to interconnectedness and synchronicity of business cycles, the search for yield that has stimulated big bubbles again, a propensity to resort to protectionism measures (which adds to fragmentation tendencies), the accumulation of systemic risks in non-banking markets. When it comes to monetary policy let me mention a few challenges. The models central banks use have baffled in quite a few instances; we still do not have clear answers as to why inflation is persistently so low in most of the Union, in spite of economic recovery. Financial stability concerns are increasingly on our radars. There are other puzzles, like the flattening of the Philips Curve and I would range here the fall of financial intermediation in some Non-member Sates –in Romania and Hungary in particular. This seems to be a clear case of credit-less recovery, but that may also be the outcome of financial integration – for international companies prefer to source credit on external markets (where these may be cheaper). The global financial cycle poses a major challenge.