Direct control on money growth, credit growth and interest rates were the operational tools of monetary policy aiming at the control of money supply, which served as the intermediate objective. A free floating regime of exchange rate was chosen to match the monetary targets. Other forms of exchange rate regimes were never discussed due to lack of adequate foreign exchange reserves and therefore the incapability to support a fixed rate of domestic currency. In addition the floating regime was chosen as an automatic stabilizer of the fast growing current deficits. Therefore the choice between different alternatives of stabilization program was conditioned (and easy). In general this regime has resulted successful and still continues to be the operating framework of the monetary policy. I believe that its success was conditioned by low financial intermediation and under developed financial markets . The presumed stable relationship between money and transactions and permitted for confident monetary programming based on the Fisher’s equation of exchange. However, as the efficiency and speed of financial intermediation increased and financial innovation set in motion, this policy setup become obsolete. Bank of Albania moved away from direct control on money in favor of indirect control of money supply in the economy. In the context of reviewing our approach to monetary policy during the recent years we have dedicated the bulk of our research and analytical resources to better understand the relationship and causality between inflation and economic factors that influence it in the context of Albanian economy.

The total of banking assets measured as percentage of GDP shows that our region lags behind when compared to developed economies. Meanwhile prudential measures indicate problems with the credit portfolio quality, and the speed of growth could be beyond what is generally accepted sound. The risks that usually accompany fast credit growth could soon exerting pressures on monetary policy and financial stability. In my opinion the low financial and real economic integration among countries in the region constitutes as well as international financial markets constitutes another major problem in the region. The problem could become more severe if you were to keep in mind the very integrated ownership structure of banking system in the region. Cross-border lending and borrowing, or other forms of international financial flows are still relatively insignificant. With the stabilization of the economy and the rescheduling of debts, the countries together with their financial sectors have started to be gradually integrated in the international markets. Sovereign ratings given for these countries have accompanied and accelerated in some cases these developments. While the financial sectors, and particularly commercial banks, have strengthened their international ties and have been gradually integrated in the international financial markets, the competitiveness from cross-border banking activities remains still restricted. Cross-border lending activity increased slowly in the countries of the region. However, even in this field there is room to move more quickly.