Focus was first placed on strengthening the institutional capacity of the domestic financial intermediaries so as to narrow the performance gap between the domestic and international financial intermediaries. In parallel with this was the intense effort to develop the domestic bond market. During this phase of the development of the financial system, significant advancement in the banking sector was made in terms of capitalisation, risk management and governance practices, delivery channels and in human capital development in the industry. This paved the way for the interest rate reform to move to greater market orientation, thereby supporting a more efficient pricing of financial products and services. The more competitive environment that it generated also became an important driver of productivity gains, customer centricity and innovation in the financial system. Equally important, was the attention that was given to the development of a deep and vibrant domestic bond market as an alternative channel for the efficient raising of funds, particularly by the corporate sector. The development of the bond market has enabled better matching of long-term projects with long-term funds, and by reducing the over-reliance on the banking system, it has contributed significantly to financial stability. Among the institutions that was established to support the development of the domestic bond market was the establishment of the domestic rating agencies and Cagamas, the mortgage corporation. The Malaysian bond market has since evolved to become the largest in South East Asia to now account for 110% of GDP.

Furthermore, the seasonal effect of domestic agriculture production supply was stronger this year, leading to further reduction of food items annual inflation. During 2011, consumer prices in Albania were subject to supply shocks, materialised in high imported prices. This effect was more moderate during July–August and, in the absence of sudden shocks, it is expected to subdue even further in the months ahead. Moreover, second-round effects are contained, under the influence of controlled expectations of economic agents on inflation. The domestic economic setting produced controlled inflationary pressures. Aggregate demand slowdown led to spare capacities of production factors and controlled long-term inflationary pressures on the economy. Therefore, core inflation was 2.9% in July, showing a downward trend, and was close to our inflation target. New economic data obtained in September are scarce. Following our earlier analysis and based on new available information, the Bank of Albania deems that the Albanian economy continued to grow during 2011. Economic activity relied primarily on public spending and exports surge, while the private sector demand had a slow positive performance. Consumption and investments were supported by crediting, but their upsurge is conditioned by hesitation to spend. Following the revised budget, the fiscal behaviour during the last two months is characterised by lower spending pace and lower budget deficit increase. Fiscal stimulus was present in the first quarter, while in the following months the fiscal policy was more contained, which is reflected in lower annual deficit increase.