Allow me to emphasize once more the willingness of the institution I govern for meeting all the obligations deriving from the Constitution of the Republic of Albania and from the Law “On the Bank of Albania”. This will be achieved through further perfecting the framework of monetary policy and monetary operations and simultaneously through deepening our knowledge in terms of functioning and causative inter-dependence characterizing the Albanian economy. I believe that year 2005 will be a successful year in terms of research, particularly in increasing the forecasting power on inflationary developments and in improving the Bank of Albania governance. I would like to cite that adaptation of inflation targeting regime remains our political aspiration, a fact that makes us be seriously committed to prudentially follow the relevant pre-conditions. For this purpose, we will continue the relevant theses we need for finding understanding and proper support of the Assembly and other state institutions. I would like to ensure the Assembly of Albania that our recent steps and expected ones take into account even our national aspiration for a faster integration into the European Union. We have already understood that no genuine integration can exist without financial integration. The country needs more income, more political stability, more social and cultural integration, but as much important is the financial integration as well. From this viewpoint, I think that the role of the institution I govern, the role of the banking system and of the financial sector is primary and we have many challenges ahead of us.

Since the start of the crisis in 2008, Malaysia has experienced three episodes of large foreign capital outflows. Thankfully, our policy framework, a healthy level of foreign exchange reserves, and the robustness of our financial system, have enabled us to withstand such flows without significant disruption of domestic economic and financial activity. The third form of risk is through interest differentials. Very low interest rate in the AEs do not just attract yield-searching foreign funds to the higher yields in the emerging markets (EMs), they also create a very strong temptation for residents in EMs to borrow from abroad. We saw this type of vulnerability in this region in the period before the Asian financial crisis and more recently, in the Eastern European economies. The build-up of unhedged foreign currency debt by residents can be a significant source of vulnerability during times of economic and financial upheaval. Then there are global liquidity spillovers into domestic liquidity that put downward pressure on domestic interest rates. We see this most evidently with the negative interest rates of the ECB, which has resulted in capital flows to the neighbouring countries and pressure on their exchange rates. As a consequence, interest rates in neighbouring Denmark, Sweden and Switzerland have all also become negative. Such contagious fall in interest rates can lead to excessive borrowing, a decline in savings, increases in asset prices, and increases in leverage, which in turn increase the risks of financial imbalances developing and undermining financial stability.