Along with the low demand of businesses and households, its performance reflects the selective and prudent behaviour of banks in lending. Regarding lending problems, the Bank of Albania deems that banking system’s balances are sound, sufficiently liquid, and well capitalised to comply with the economy’s demand for monetary assets. The positive position of its balances triggered the lending growth during the past years, while many countries in our region experienced contraction of lending. The banking system has reviewed and tightened lending standards during the last years; this behaviour to enhance the financial discipline of the economy is welcomed and shall positively support the long-term growth of Albania. On the other side, credit performance is increasingly experiencing the lack of demand, which is triggered by the consumers and businesses reluctance to carry out expenses and investments. Bank of Albania deems that, notwithstanding the cyclical situation of Albania’s economy, the perspectives on medium and long-term development remain positive. This is reflected by the interest of foreign investors to increase their exposure toward the Albanian economy. In particular, economy sectors related to exports, tourism and agriculture, which serves to the domestic and regional markets, provide unused development potentials. Bank of Albania deems that, within the sound business’ logic parameters, the Albanian entrepreneurs and consumers have room for a more active approach toward the growth of investments and their consumption. Financial markets showed low interest rate fluctuation and operated under sufficient liquidity terms in the second quarter of 2012.

The domestic economy is expected to slow down during the rest of year, being conditioned by the weakening of the domestic and foreign demand. Given the consolidated fiscal behaviour and the slowed foreign demand, the performance of the private domestic demand will determine the economic activity growth. However, its two components, consumption and investments, have not shown any recovery signal so far. Expected developments at home and abroad result in a contained balance of inflationary pressures, determining a slow increase in consumer price in the future. The demand growth  BIS central bankers’ speeches  3  below the potential of the economy in the upcoming period will continue to exercise low inflationary pressures. At the same time, the pressures generated by supply-side factors appear contained. Based on the insofar developments of the determinant factors of inflation and the projections for their development in the future, with 90% probability, inflation will range within 1.0% – 3.3% band after 12 months. *** Based on the analyses of the information set out above, the Supervisory Council holds that pressures on consumer prices at home remain low over the monetary policy relevant horizon; they have been, however, on the downside over the recent months. On the demand side, below-potential economic growth will continue to generate low inflationary pressures, while shocks from the supply side are expected to be moderate. The expected developments in economy and inflation imply that the simulating nature of the monetary policy will be retained during the period ahead.