Imports performance incurred the same development declining by about 8 percent in annual terms. External economy developments are accompanied by the maintenance of high trade deficit rates, which affect the imbalance of the demand to supply ratios for foreign currency in the economy. Nevertheless, the maintaining of the exchange rate flexibility, the correcting tendency of trade deficit and the attraction of savings denominated in ALL, as higher interest rates and of low inflation, serve to relaxed and prudential volatilities of the exchange rate and to a strong position of ALL in the short-term and medium-term period. Monetary indicators of July have reflected the more relaxed dynamic of financial intermediation. External sector highlights of the economy have affected the negative paces of the foreign currency component of money stock. However, banking system carried out the intermediation to increase lending in ALL extended to private and public sector with positive paces. Thus, while monetary supply picked up at slower annual paces, about 4.4 percent, M2 aggregate maintained high paces of the annual growth at 9.7 percent as at July. The slowdown of lending pace to economy in foreign currency and the lower supply of foreign currency inflows from external sector have led to a negative annual pace of deposits growth denominated in foreign currency of the system. Lending to private sector increased by 15.8 percent in real annual terms, relative to 17.9 percent in June. Lending to business provided the main contribution on the monthly growth of credit, a constant phenomenon, which this month appeared particularly more emphasised.

The average annual inflation marked 2.2 percent, equal to the value of the previous year, revealing the full elimination of the first round effects of the previous year increases in terms of raw material and electric prices. Fiscal policy persisted to be also expansionary during July, notwithstanding at more moderated paces. Budget revenues stood at the same rates of projection fulfilment with the previous months – accounting for 94 percent – while expenditure were met by 98 percent of the projected target, maintaining the same level with the three previous months. This effect provided advantage to the expansion of budget deficit in this period. As we have underscored even previously, the increase of both budget deficit and public expenditure does support the economic activity in terms of a low demand of the economy, but it also is accompanied by the increasing tendency of the public debt interest rates. The increasing review of public expenditures and budget deficit rate is forecasted to preserve this effect  BIS Review 122/2009  1  even during the remaining part of 2009, while a more balanced fiscal position for 2010 would reduce the pressures on monetary markets, by establishing more spaces for the rise of monetary stimulus. The external sector data regarding second quarter 2009 reveal a further reduction of the Albania trade exchanges with the rest of the world in annual terms. According to preliminary data, these development tendencies have persisted even during July 2009. Exports decreased by 17 percent relative to the same month of previous year.