Ardian Fullani: Recent economic and financial developments in Albania Speech by Mr Ardian Fullani, Governor of the Bank of Albania, at the press conference on the Bank of Albania’s Supervisory Council decision on monetary policy, Tirana, 23 February 2011. *  *  *  Today, on 23 February 2011, the Supervisory Council of the Bank of Albania reviewed and approved the monthly Monetary Policy Report. Based on a thorough analysis of Albania’s latest economic and monetary developments and discussions on their performance outlook, the Supervisory Council of the Bank of Albania decided to leave the key interest rate unchanged at 5.00%. The Supervisory Council confirmed that the actual monetary conditions remain appropriate for meeting the medium-term inflation target and for supporting the domestic economic activity. I would like to proceed with a brief overview of economic developments and main issues discussed at today’s meeting of the Supervisory Council. *** Recent data from the global economy confirm the positive underlying momentum of the economic activity in developed and developing economies. Despite the gradual withdrawal of fiscal and monetary stimulus, economic growth has been stable, as a result of the recovery in the private sector demand in developing countries. On the other hand, the higher demand has triggered a price increase in commodities, basic products and food items, thus impacting the shift of the inflationary pressures upward. Nevertheless, globally, consumer price inflation remains still contained, as long as major economies continue to be characterised by below-potential economic growth.

A good progress of the economic activity and falling risk premia are also reflected on the upsurge of demand for loans by the private sector. Satisfactory parameters of the banking system in terms of liquidity and capitalisation have enabled additional support to the private sector with bank loans. In December, the growth rate of loans to the private sector reached 10.6% year-on-year. In addition to private businesses, which were the main users of credit funding during 2010, positive signals come from household consumers, whose demand for loans increased during the last quarter of 2010. Financial markets are characterised by dropping risk premia and liquidity, reflected in a further decline of yields in the primary market and interest rates in Albanian Lek deposits and loans. In the inter-bank market, short-term interest rates remained close to the key interest rate and showed low volatility. Foreign exchange trading in the domestic market was also calm. The Albanian Lek continued to depreciate in annual nominal terms against foreign currencies, although more slowly compared to 2010. *** Taking into account the information summarised above, the Supervisory Council deemed that inflationary pressures for the medium-term horizon remain contained. Consumer price situation is expected to be under the pressure of price increases in world markets, but, in the absence of second round effects, their impact is expected to be transitional. On the other hand, the actual insufficient demand will continue to condition levels below the potential domestic capacity utilisation, exercising downward pressures on inflation.