The decision-making process can then continue with forecasts for inflation and resource utilisation conditional on alternative repo rate paths, to determine which repo rate path is judged to best stabilise inflation and resource utilisation. These forecasts can be made under two different assumptions. One assumption is that the alternative repo rate path will become credible and be incorporated into market expectations. Forecasts under this assumption can be constructed by using what are known as anticipated deviations of the repo rate path  BIS Review 158/2010  11  (Laséen and Svensson 2010 and Svensson 2010b). The other assumption is that the alternative repo rate path is not credible, that market participants are surprised when the actual repo rate deviates from the expected one. Forecasts under this assumption can be constructed by using what are known as unanticipated deviations of the repo rate path. The assumption used should depend on the circumstances and the motives for this choice should be stated. Normally, the repo rate path that is included in the main scenario of the report should be chosen such that it best stabilises inflation and resource utilisation when it is credible. The starting point should be that the analysis in the Monetary Policy Report/Update and in other information from the Riksbank is so complete, well-reasoned and convincing that it gives the repo rate path credibility. Forecasts for policy rates abroad should primarily be based on market expectations according to implied forward rates.

After recovering in the last quarter of 2011, private consumption slowed down in the first quarter of 2012. The performance of imports of consumer goods and the low annual growth of VAT revenues suggest sluggish consumer demand over the quarter under review. This assessment is also supported by qualitative data obtained from consumer, business and banking sector surveys. The dynamic of quantitative and qualitative indicators also suggests a sluggish performance of investment. BIS central bankers’ speeches  1  Against a background of low demand and spare production capacities, and in the presence of uncertainties for the developments at home and abroad, businesses have postponed their new investment-related decisions. In addition, the contribution of public investment to aggregate demand growth was negative in the first quarter of 2012. The Government pursued a prudent fiscal policy in the first four months of the present year, translated into the annual reduction of the budget deficit by 28% during this period. Budget revenues continue to record moderate annual growth rates, reflecting the performance of economic activity and providing evidence for the mutual impact between the public and private sector dynamics. The Bank of Albania, however, points out that pursuing a fiscal policy oriented toward the long-term sustainability of budget and public debt figures will provide clear medium- and long-term benefits to the Albanian economy, in the form of lower risk premiums, greater room for private sector financing and, ultimately, lower financing costs. This policy is also in line with the developments in domestic and foreign financial markets.