The fiscal policy applied during the three first quarters of the year materialised in the annual fall of public spending for this period, whereas income growth was low and budget deficit was in check. On the other hand, the fourth quarter of 2012 and year 2013 are expected to be characterised by upward fiscal spending and budget deficit. This fiscal policy increases the macroeconomic stimulus in the short run; however, it should be sensitive to the need for medium and long-term stability of the public debt. BIS central bankers’ speeches  1  Foreign demand was the main driver of economic activity in the third quarter of the year. Latest foreign trade data confirm the same trend for the successive period. Thus, in October, the trade deficit continued the corrective trend, narrowing down to 10.3% in annual terms. Its performance has reflected mainly the good performance of exports, which maintained positive rates of their annual growth, 12.0% in this month. Imports have also contributed to narrowing the trade deficit, contacting 2.3% in annual terms, in this month. The analysis of monetary indicators points to low monetary pressures on prices. Higher money supply, the M3 aggregate, continued to decelerate in October, settling at 6.2%. In particular, lending to the private sector slowed down significantly. Annual credit growth for the private sector was 2.4% in October, reaching its all-time low. To a large extent, it is influenced by the low demand of households and business for loans, as reflected by the performance of consumption and private investments.

On the other hand, the banking system continues to apply additional prudence with regard to lending, albeit it is under good liquidity and capital conditions. Financial markets are characterised by downward liquidity risk premiums. Interest rates in the inter-bank market fell even further in November, reflecting the ample liquidity and eased monetary conditions. In the primary market, government security yields continued to fall. Moreover, the interest rate on deposits and loans denominated in the Albanian lek were downward, in response to monetary policy signals. In the period ahead, a more comprehensive response of the real economy to the eased monetary conditions is expected. *** The Supervisory Council of the Bank of Albania deems that inflation will remain at low levels and close to the medium-term inflation target of the Bank of Albania. The performance of the domestic economy, global economy, and financial markets is not expected to generate any deviation from the 3.0% inflation target. Under these conditions and in the absence of unexpected shocks from the supply side, consumer prices will increase at low rates and will range within the target of the Bank of Albania. *** At the conclusion of discussions, the Supervisory Council decided to keep the key interest rate unchanged, at 4.00%. Keeping the key interest rate at minimum rates helps maintain the stimulating character of the monetary policy, thus enabling the real economy to take advantage of better lending terms in 2013. Furthermore, this policy contributes to keeping inflation expectations in control, by helping lower long-term interest rates.