Gent Sejko: Welcome remarks - 16th SEE Economic Research
Workshop
Welcome remarks by Mr Gent Sejko, Governor of the Bank of Albania, at the 16th SEE
Economic Research Workshop, Tirana, 5 December 2022.
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Your Excellency Ambassador Huber,
Dear guests and speakers from central banks, academia and research institutions,
Dear colleagues,
Welcome in the 16th South-Eastern European Economic Research Workshop. It is a
great pleasure hosting this event in-person this year, as we hoped in the last workshop,
even though only partially, after two years of holding its proceeds virtually.
One lesson learned and adopted from the pandemic, in a broader dimension, was how
to operate in a virtual environment and ensure that all our participants can be fully
engaged in these proceedings-whether you're here in person or joining us virtually.
I take this opportunity to extend my appreciation to all of you for your continuous
dedication and precious contribution. I'm really grateful that this initiative, which has
started 16 years ago, has grown and has taken such dimensions, by enforcing and
extending over the years the cooperation between central bankers, academics and
policymakers not only within the SEE region, but from all over the world.
As in many prestigious central banks, even at the Bank of Albania, the economic
research has an important role in its overall activity, by providing continuous support to
both policy design and implementation processes through the novel and sophisticated
empirical tools adopted for policy analysis and forecasting. High-quality research boosts
the central bank's credibility and improves the quality of its policies.
The remit of this activity is the presentation and discussions of the current research
projects conducted at the Bank of Albania over this year, along with the researches
performed in other central banks, prestigious international and Albanian universities, as
well as in financial institutions. It is an excellent opportunity to get feedback and new
insights from colleagues in homologue institutions working on the same topics and
dealing with similar challenges to ours. I am pretty sure that this workshop will be
worthwhile to better understand the origin and complexity of challenges we are facing,
and design the right policies to address them accordingly.
Over these years, the workshop did change and grew in many different ways, in turn so
did the challenges and opportunities faced by us. This event takes place at a
particularly difficult time: while we are still facing the complexities of the gradual phasing
out of the policies implemented during the pandemic, new risks have dramatically taken
center stage.
Despite the limited direct exposure of Albania to Russia or Ukraine, the macroeconomic
scenario changed almost overnight following the Russia's war in Ukraine. Albania is
now facing the challenges arising from the surge in international prices of energy,
tighter global financial conditions, which are likely to persist and the economic
slowdown in Europe. Inflation reached at 8.3% in October, continuing to remain the
main threat to the macroeconomic stability and to both the stable and long-term growth
of Albania.
Given these circumstances, the Bank of Albania has undertaken a gradual monetary
policy normalization process, ensuring that the speed of this normalization will return
inflation to target within a reasonable period of time and with the lowest cost possible to
the economic activity. Our efforts to control and contain inflation have also been helped
by the appreciation of our currency vis-à-vis the euro. During 2022, our currency, the
lek, has appreciated by 2.5% on average against the euro, due to significant revenues
generated by tourism, high FDIs, and stable risk premia in our domestic financial
markets. This was further strengthened by the convergence of our monetary policy
cycle with that of the euro area. In parallel, the regulated energy price for Albanian
households has helped in absorbing the foreign pressures. This conclusion is well
documented by previous and recent research conducted by our staff at the research
and policy departments and by the econometric models that support our monetary
policy.
Foreign price pressures helped by persistent domestic demand are already feeding to
inflation of domestically produced goods and services, thus driving to the increase of
production costs, and most importantly, of inflation expectations. This is evident in the
labor market, capacity utilization rate and the capital markets, which seem to have
already internalized these expectations in their decision making.
The vast body of research conducted in the area of monetary policy has documented
the real risk of high and persistent inflation and inflationary expectations. It also shows
that without a strong and committed monetary policy response, inflation expectations
become self-fulfilling, leading to increased uncertainty, disrupted price signals,
inefficient distribution of resources, reduction of economic growth and increased long
term volatility. Our experience, research and current analysis, show that under current
conditions, the only responsible policy for the central bank is to respond by increasing
the policy rate and reinforcing its commitment to price stability. This course of action will
create the necessary monetary conditions to control inflation and inflation expectations,
and will eventually help return inflation to the target within a reasonable time horizon.
Our commitment to price stability aims to preserve the purchasing power of the family
incomes and the value of household savings; preserve financial stability and create
optimal credit conditions; as well as help the private sector to make reliable business
and sustainable investment plans.
Most importantly, our projections, which benefit from the same models and research
analysis, suggest that the current round of policy rate hikes will not be recessionary.
The Albanian economy will continue to grow in the medium-term horizon. In this
respect, the recent increase of policy rate which aims to preserve price stability and
anchor inflation expectations, is simultaneously a measure for protecting the economy;
the private sector; and the households, from the negative effects of inflation. This is
especially supportive and important for the low income groups, which are hit harder by
the negative effects of high and persistent inflation.
However, the general public must understand that the outlook is subject to considerable
uncertainty, and amidst such profound uncertainty, amplification mechanisms may arise
from multiple channels, due to the close interconnections within the global financial
system. I am happy to see that all these issues will be discussed in depth during this
workshop.
In fact, the agenda is quite rich and covers a vast variety of research topics related to
monetary and fiscal policy, financial stability, policy coordination, risk assessment and
management through macro-prudential policies, with a special focus on price dynamics
and soaring inflationary pressures witnessed worldwide, and the associated challenges
they poses to policymakers, at both macro and microeconomic perspectives. We are all
waiting impatiently to hearing what the respective speakers have to say about the
duration and the intensity of such pressures and any potential implications for monetary
policy. I am sure it will provide an excellent opportunity to gain new insights from
academic research.
Looking forward, beyond the dramatic events we are currently witnessing, technology
coupled with the transition to an economy with net-zero carbon emissions will continue
to shape the evolution of markets and of both traditional and new financial service
providers.
Therefore, additionally to the traditional issues of monetary policy and central banking,
an exceptional attention during the workshop will be given to climate change related
risks and green finance - which have turned into the "leitmotiv" in the communications
of many central banks, and European and international institutions, - digitalization of
financial services and technological improvements, and their implications for central
bank objectives.
I am confident that the research papers on these "hot" topics will provide some
guidance on how to approach these issues, arising from the recent economic
developments. Strong cooperation would be extremely useful on this regard, also
because such areas are still under-researched.
In these brief opening comments, allow me to point out that the coming months will be
challenging for our societies, and the following years may see substantial structural
transformations. Addressing the main challenges faced by the Albanian economy, such
as, inflation, energy crisis, etc., triggers many obligations to be taken and many policy
paths to be considered by the authorities. Our experience in the implementation of
existing old and new policy tools and policies in such harsh and changing conditions is
growing, but new risks are also emerging.
Research and discussion fora like this workshop, in which fresh ideas and experiences
are exchanged among academics and policymakers, will be ever more important. It is
the application of research findings and conclusions in the practical policy making that
gives research its true value and meaning, for the benefit of the central bank and the
society.
Before concluding, I would like to thank the Swiss Government and the State
Secretariat for Economic Affairs (SECO) for their continuous support of research activity
at the Bank of Albania. We have been cooperating together for 10 years to build and
improve research activity to the best international standards and make it practical and
useful in the context of the central bank. Our models and a significant part of research
projects have been developed in cooperation or under the technical assistance of the
State Secretariat for Economic Affairs as part of the Bilateral Assistance and Capacity
Building Program for Central Banks. This project led, reviewed and commented
research projects undertaken by our staff, and made substantial contribution to the
credibility, reputation and prestige of our Research Workshop.
Our cooperation has been truly productive and very useful not only for the development
of research activity and state of the art forecast and policy analysis modes but most
importantly, for their implementation in the mainstream policy of the Bank of Albania in
the areas of monetary policy, financial stability, and the analysis of demographic and
climate change issues. Beyond and above these, our successful collaboration with the
State secretariat for Economic Affairs extends to the areas of payment systems and
financial education.
Your Excellency Ambassador Huber, we are grateful for your support and look forward
to the successful implementation of our current projects. I hope we will have many other
opportunities to continue our fruitful cooperation in the future.
Finally, I would like to close my remarks by thanking our speakers, discussants, the
chairpersons, as well as the Bank of Albania's staff for dedicating your time and efforts
to this important activity.
I kindly invite you to actively participate in and conduct a very lively and fruitful debate. I
truly believe that the productive discussions which will certainly take place during these
two-day workshop, will contribute to strengthening further cooperation among
researchers, and between the institutions.
Thank you!