Although I see why it is difficult to define inflation targeting, I consider the definition given by Ben Bernanke as being the appropriate one. Accordingly, inflation targeting is “a framework for monetary policy characterised by the public announcement of official quantitative targets […] for the inflation rate over one or more time horizons, and by explicit acknowledgement that low, stable inflation is monetary policy’s primary long-run goal. Among other important features of inflation targeting are vigorous efforts to communicate with the public about the plans and objectives of the monetary authorities, and, in many cases, mechanisms that strengthen the central bank’s accountability for attaining these objectives.” The definition can be wrapped up by adding instrument independence for the Central Bank and the lack of an explicit intermediate target, as all factors affecting inflation are taken into consideration. An important feature of inflation targeting is the need for accountability of the central bank. Within the inflation targeting framework, this is enhanced by the public announcement and commitment to attain an inflation target. The explicit target and the public and transparent nature of inflation targeting also enable the central bank to withstand political pressures more easily and to overcome the so-called time inconsistency problem. In this sense, as Frederic Mishkin1 argues, central bank independence and inflation targeting are mutually reinforcing. Adopting inflation targeting is not just a matter of choice, but also of fulfilling a number of key requirements.

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.