Direct impact of this shock on financial markets, and especially on government securities market was about 2% of GDP. However, their indirect impact was even greater. As in other countries of the Central and Eastern Europe, banks originating from  BIS central bankers’ speeches  1  the euro area countries adopted a more conservative behaviour, manifested in further slowdown of lending during the year. As a result, the Albanian economy slowed further over the past year, leaving spare capacities in the labour and capital markets. This development was associated with low increase in wages and producer costs and was reflected in slightly increased consumer prices. Supply shocks were few and of low intensity over the past year, inflationary expectations remained anchored and liquidity position was favourable to keep inflation in check. This balance of factors was materialized in low annual inflation rates and the annual consumer price rise eased to 2.4% at end-2012. Low inflationary pressures and lack of fiscal stimulus made room for further easing of monetary policy in 2012. The Bank of Albania cut the key interest rate three times, to 4.0%, from 4.75%. The monetary conditions were eased to stimulate the domestic demand and create better conditions for meeting the medium-term inflation target. Also, the Bank of Albania increased significantly the liquidity-providing operations in the banking system to calm down financial agents, control the rising interest rate trends and ensure the smooth functioning of markets.

One of the biggest investments of the Bank of Albania to guarantee our currency’s integrity is the construction of the new building of Currency Issue Centre, which started operating in 2012. The closed and automated cycle of controlling processing, packaging and shredding of banknotes takes place in this building. Soon professional expertise on banknotes and coins suspected to be counterfeit will be made, hence fulfilling one of the obligations of the Albanian state in view of the Stabilisation and Association Agreement. Foreign-exchange reserve management Holding and managing Albania’s foreign-exchange reserve to preserve financial stability of the economy is another constitutional function of the Bank of Albania. The gross foreign-exchange reserve was up by EUR 65 million in 2012, registering EUR 1.972 million at the end of December 2012. Payment system Fulfilling its legal duty, the Bank of Albania promotes smooth functioning of payment systems to support the monetary policy implementation and maintain financial stability. During 2012, Lek interbank transactions were cleared and settled timely, efficiently and safely, conform to rules and procedures of both systems (ARCH and AIPS). Also, several regulations and manuals were reviewed and drafted, consisting in strengthening the supervision and further developing the Albanian payment system. Improvement of statistics The year 2012 pointed to improved statistics as a legal responsibility of the Bank of Albania. During this year, a model was drafted to improve the balance of payments statistics and the international investment position, aiming to approximate the national statistics system with the ECB and ESCB standards.