In this way, the exchange rate has contributed to containment of the high international oil price effect and to maintaining a low inflation rate. Agricultural production Agricultural production is one of the main domestic factors, which condition the consumer price developments. The quantity of domestic agricultural production influences instantly on foodstuff price level. During 2006, the seasonal effect of agricultural production rise appeared later than in the preceding years, leading to foodstuff price decreases only in September and October. Production prices During 2006 the production prices continued the downward trend noticed since April 2005. However, the concentration of production price index on the productive sector of industry makes difficult its comparison to consumer price index. Also, the domestic production share is not yet a determinant component of goods supply in the domestic market, thus not affecting the consumer prices. Wages and unemployment The good performance of the economic activity during 2006 was also reflected in labour market indicator, and particularly in unemployment rate. New employment possibilities were created, making unemployment rate continue its downward trend observed since more than two years ago. Improvements have also been made in terms of incomes. So, government sector wages, the minimum wage and pensions have increased in accordance with the  BIS Review 80/2007  5  budget plan. The so-far inflation performance shows that Albanian economy does not suffer from any significant discrepancy between wage rise and productivity. Inflationary expectations The business and public expectations in short- to medium-term have fluctuated around the inflation rates recorded.

The traditional form of regulation was to set very strict rules or to forbid banks from conducting certain activities. The modern form is to be more flexible. Regulations set the boundaries while allowing the banks to operate within these boundaries if they can prove that they have the skills and resources to do it in a sound manner. Modern regulation puts much more responsibility on the banks themselves and their owners and management. In Sweden, the former Banking Act actually prohibited the banks to engage in any activity that was not explicitly permitted in the law. The new Banking Act starts at the other end, permitting the banks to do whatever they find suitable except for certain activities that are explicitly forbidden. Today’s financial institutions, instruments and markets are, of course, much more sophisticated than earlier. There is also much broader diversity in the sector. For example, the needs of customers are satisfied in many different ways and by many different actors, certainly not only by banks. As a consequence, modern regulation needs to be more flexible than in earlier days, when the market was more homogeneous. The regulation should encourage competition and innovation, but at the same time discourage unsound risk taking and generally unbecoming or even illegal behaviour. Only when there are strong arguments should the regulator outright restrict or prohibit certain activities. Instead, regulations should provide incentives for banks and others to behave in a sound manner.