In accordance with the applicable legal framework, the Bank of Albania: strives to maintain price stability, as a precondition for sustainable and long-term growth in the country; licences, supervises and regulates the activity of the banking sector, hence promoting financial stability; administers the issue and circulation of the Albanian currency; contributes to the development of the payment system; and performs a number of other specific duties, which affect the economic life and financial system in Albania. Based on the available information, the Bank of Albania finds that in 2018 the Albanian economy and finances marked progress. Economic activity and employment continued to expand, wages and domestic inflationary pressures trended upward, main banking sector’s soundness indicators improved, and a series of indicators of domestic and external economic balances strengthened. This dynamics of developments reflects, significantly, the effect of policies, measures and instruments we have adopted on continuous basis. Concretely, in 2018 the Bank of Albania has: 1. implemented an accommodative monetary policy, which has boosted economic growth and the convergence of inflation toward the target, and has contributed to improving the balance sheets of enterprises, households, public sector and financial institutions in Albania. 2. strengthened and improved the policy, regulatory and operational framework for supervising the banking sector, mindful of the administration of the consolidation process; and 3. created incentives for the development of the payment system and expansion and deepening of the financial market. With regard to fulfilling strategy objectives, the Bank of Albania has worked intensively for adopting best central banking practices and standards.

The current account deficit decreased at 6.7% of the GDP in 2018, from 7.5% in the previous year. Its improvement reflected to a large extent the increase in the tourism-related activity. Budget deficit and public debt continued to record a downward trend, reflecting both the consolidation path of the fiscal policy and the economic growth as well as the exchange rate appreciation. The main banking sector soundness indicators, in particular liquidity, profitability and capitalisation, remain at satisfactory levels. Against this backdrop, annual inflation averaged 2.0%, remaining unchanged from 2017 and below our 3% target. Inflation stood stable owing to two effects of opposite directions. The buildup in domestic inflationary pressures, generated by the rise in employment, wages and production costs was offset by the rapid appreciation of the domestic currency over the first half of the year. The exchange rate appreciation was a decelerating factor for achieving the inflation target. The exchange rate has moved along a slight appreciation path over the last three years, driven by fundamental factors that dictate its behaviour such as: improvement of the balance of trade exchanges with abroad, high levels of foreign direct investments, and reduction of risk premia in domestic financial markets. Yet, beyond these effects, the exchange rate was subject to certain shocks in the first half of 2018.