This allowed us to deploy a range of unconventional policy tools to ensure that inflation remained in line with our aim. Neither operating monetary policy according to a fixed rule nor restricting ourselves to conventional policy tools would have sufficed. Discretion and flexibility in the use of our tools helped to strengthen our credibility. Flexibility and credibility were, in this instance, mutually reinforcing. By contrast, rules lose credibility if they are applied with discretion. Rules will be undermined if countries find reasons to circumvent them or rewrite them as soon as they bind. But circumstances will always arise which were not foreseen at the time the rules were written and which call for flexibility. In the case of rules, there is an inevitable trade-off between credibility and flexibility. This is why there are always tensions when it comes to economic policies that follow the rulesbased approach. But the transition to an institutions-based approach requires trust between countries. And trust is based on strict compliance with the existing rules, but also on the ability of governments to reach mutually satisfactory compromises when the circumstances call for flexibility and to explain them adequately to their citizens. That transition nevertheless remains necessary. The European Commission’s recent initiative on the international role of the euro provides a further example of the need to move from the current framework of various laws and ad hoc rules to a system based on harmonisation and institutions.

Based on the economic outlook, and aiming at further boosting the aggregate demand, the Bank of Albania cut the key interest rate by 0.25 percentage points to 2.75%, in the first  2  BIS central bankers’ speeches  quarter of the current year. This cut followed the previous monetary policy easing in the second half of 2013. To strengthen and better transmit the monetary stimulus, the Bank of Albania’s monetary policy decisions were accompanied by continued liquidity injections and public guidance on the monetary policy direction in the near future. Our monetary policy has managed to control the inflation expectations of economic agents, keeping them anchored to our target. It has also mitigated the liquidity risk and inflation premia in financial markets, contributing to lowering interest rates in the interbank market, government debt securities market, deposit market and lek credit market. However, its transmission to higher lending activity remains incomplete. Interest on lek-denominated loans factors in the relatively high risk premia. Moreover, banks remain considerably conservative in terms of lending, by tightening the applied standards. This development reflects the financial terms in the euro area and the uncertainty perceived by financial agents in the domestic market. It is an impediment to the transmission mechanism and illustrates the need for reducing risk and improving the business climate in the economy. This commitment should be the scope of work for both public and private economic agents. Along with the conservative policies, lending continues to be affected by lack of demand for funds by businesses and consumers.