The domestic economy is expected to slow down during the rest of year, being conditioned by the weakening of the domestic and foreign demand. Given the consolidated fiscal behaviour and the slowed foreign demand, the performance of the private domestic demand will determine the economic activity growth. However, its two components, consumption and investments, have not shown any recovery signal so far. Expected developments at home and abroad result in a contained balance of inflationary pressures, determining a slow increase in consumer price in the future. The demand growth  BIS central bankers’ speeches  3  below the potential of the economy in the upcoming period will continue to exercise low inflationary pressures. At the same time, the pressures generated by supply-side factors appear contained. Based on the insofar developments of the determinant factors of inflation and the projections for their development in the future, with 90% probability, inflation will range within 1.0% – 3.3% band after 12 months. *** Based on the analyses of the information set out above, the Supervisory Council holds that pressures on consumer prices at home remain low over the monetary policy relevant horizon; they have been, however, on the downside over the recent months. On the demand side, below-potential economic growth will continue to generate low inflationary pressures, while shocks from the supply side are expected to be moderate. The expected developments in economy and inflation imply that the simulating nature of the monetary policy will be retained during the period ahead.

The transmission of reduced rates is also observable in lek deposits market, followed by normal growth pace of deposits. By contrast, government security yields increased in the primary market, particularly the long-term yields. This performance has reflected the re-positioning of some agents in this market and the demand for financing in this period, without implying a shift of inflationary pressures. At the beginning of July, ratios improved and borrowing costs were reduced in the primary market. The second quarter also transmitted signals on eased interest rates on ALL credits from banks. Nevertheless, credit-lending paces remain low and mainly designated for short-term use, leading to fluctuating interest rates. The introduction of new financial intermediaries, specialised in channelling the public savings to government securities, was a positive development, worth mentioning in the analysis of financial markets for the first half of year. His development along with the increased public interest on government securities, enhances the deepness of our financial system, improves liquidity, enhances its risk management capability, limits the interest rates fluctuation, increases the Albanian public debt stability and provides pressures to reduce the financing cost of the public sector. Verified performance of economic activity at home and the information filtered from indirect indicators have shifted downward our basic projections for the economic performance for the rest of year. This shift reflects the materialisation of some risks around the previous basic projections, being expected and factorised in our scenarios.