Ardian Fullani: Overview of Albania’s recent economic and financial market developments Speech by Mr Ardian Fullani, Governor of the Bank of Albania, at the Press Conference on the Monetary Policy Decision of Bank of Albania’s Supervisory Council, Tirana, 31 July 2013. *  *  *  Today, on 31 July 2013, the Supervisory Council of the Bank of Albania reviewed and approved the Monetary Policy Statement of the Bank of Albania on the first half of 2013. Based on the latest monetary and economic developments in Albania, and following the discussions about their outlook, the Bank of Albania’s Supervisory Council decided to lower the key interest rate by 0.25% percentage points to 3.50%. Lowering the key interest rate would improve the conditions for a higher aggregate demand, hence helping inflation fall back toward the Bank’s 3.0% target. Further easing of monetary policy takes into account expectations for a contractionary fiscal policy over the second half of the year and makes room for a fast and low-cost adjustment of public finances. Let me now proceed with an overview of the economic developments and key issues discussed at today’s meeting. The first months of 2013 confirmed our assessments of Albania’s slow economic growth and weak inflationary pressures. Albania’s economic activity continues to suffer from sluggish aggregate demand reflecting economic agents’ uncertainties about the future, relatively tight lending standards, and economic weaknesses of our main trading partners. However, amid a challenging macroeconomic environment, Albania’s economic and financial stability remains stable.

Inflationary pressures were low during the last quarters. Reflecting also the Bank of Albania’s prudential monetary policy, inflation settled within its target in 2012. The increase in annual consumer prices was 2.4% at year-end, while the annual average inflation rate was 2%. The inflation rate increased progressively during the first three quarters and fell slightly during the fourth quarter. Inflation volatility was mainly driven by food prices, which were affected by the international market and domestic production. The effect of other basket goods’ prices on inflation was low and slightly volatile. Regulated or administered price inflation was insignificant, while higher prices for consumer goods, oil and primary commodities in the global market did not cause any higher inflation in the Albanian economy. From the macroeconomic viewpoint, all determinants of inflation contributed to keeping it at low levels. The incomplete utilization of productive capacity was associated with businesses’ low demand for labour, hence no pressures for increase in wages and labour costs. Also, the weak demand for goods and services reduced businesses’ ability to dictate final product prices and affected low levels of profit margins. On the other hand, low increase in the global market prices and the exchange rate stability helped in keeping import prices in check. Finally, expectations for a low inflation in the medium term were reflected in stable costs, prices and interest rate in medium-term and long-term contracts concluded in the labour market, in consumer goods and financial instruments.