Ardian Fullani: Recent economic and monetary developments in Albania Speech by Mr Ardian Fullani, Governor of the Bank of Albania, at the press conference on the Monetary Policy Decision of the Bank of Albania Supervisory Council, Tirana, 29 September 2011. *  *  *  Today, on 29 September 2011, the Supervisory Council of the Bank of Albania reviewed and approved the monthly Monetary Policy Report. Based on the analysis of Albania’s latest economic and financial developments and following discussions on the performance outlook, the Supervisory Council of the Bank of Albania decided to cut the key interest rate by 0.25 percentage points. Following this decision, the interest rate for one week repurchase agreements is 5.00 per cent. This cut in the key interest rate reflects contained inflationary pressures, anchored expectations of economic agents, and a more prudent fiscal policy during the period ahead. The easing of monetary policy aims at providing appropriate monetary conditions to meet the medium-term inflation target and promote economic activity through stimulating consumption and investments in Albania. (Let me now proceed with an overview of economic developments and main issues discussed at today’s meeting of the Supervisory Council.) *** The month of August was characterised by a sharp decline in inflationary pressures. Annual inflation rate was 3.1%, or 0.4 percentage points lower than in July. In addition to decreased foreign price shocks, during this month, inflation contribution on regulated prices dropped and contribution of prices of bread and grains curbed.

Money demand was affected by a moderate upward private sector demand for funding. Lending to private sector increased by 12.5% in July, triggered by the relatively stable increase of lending to private businesses and resurgence of lending to households. Although the banking system has eased lending standards, the Bank of Albania deems that there is still room for further easing, especially as regards credit for private investments. Developments in financial markets indicate downward risk premiums and liquidity. In the interbank market, trade volume expanded further and interest rates dropped, remaining close to the key rate and displaying low volatility. Moderate government demand for funding is reflected in refrained upward trend of government bill yields in the primary market. Additionally, the yields trend retained its trajectory, showing low inflation expectations by financial market agents. At the end of H1 2011, the situation of the financial system and banking sector was stable. The banking sector, expanded its activity and broadened its share in the country’s economy. Liquidity situation is good while the deposits by the public increased at satisfactory rates; they cover more than once the value of credits and borrowing from non-residents is low. Data indicate that lending growth rate is improving, but the credit portfolio quality continued to drop. The banking sector retains stable growth rates of net interests revenue and gross operational profit. However, tightened capital requirement to cover credit risk, led to lower net financial results of the banking sector compared to a year earlier. However, financial performance continues to be positive and concentrated.