Past episodes of persistent negative price growth, such as those seen in Japan over the last decade, have shown us that in those conditions monetary policy loses much of its potential to exert a decisive influence on the price path and on the level of output. In that regard, most central banks, such as the ECB, recognise that their price stability objective should be made compatible with a low probability of deflation. Moreover, in the current setting of low inflation and interest rates, we have witnessed episodes of rapid increases in some asset prices that have led analysts to suspect important deviations between fundamental and observed values. Some notorious recent examples include the overvaluation in the real-estate sector in several East Asian countries in the 90s, and the surge and subsequent correction of the wave of excessive optimism in some equity markets around the turn of the millennium. Currently, the extreme increases in housing prices and households’ level of indebtedness witnessed in some western countries is attracting some attention and concern in view of the potentially adverse consequences on the stability of the whole economy. Looking back, one can indeed find in unbalanced developments in asset and debt markets the seeds of some of the major financial crises that ultimately led to persistent negative output and price growth. Therefore, conditions such as low inflation and interest rates may sometimes conceal risks capable of bringing a phase of price and economic stability to its end.

The implementation of quick and concrete measures, which guarantee the long-term stability of public debt, seems that shall condition considerably the future development. World financial markets have reacted tensely against these developments, being characterised by a high volatility and an increase of risk primes throughout the instruments variety, markets and financial agents. Turning to the domestic economy, the latest qualitative and quantitative indicators show a slow performance of economy in the early months of 2010. The deceleration of domestic demand is compensated by a positive and growing performance of the Albanian exports. The domestic inflationary pressures were low and the consumer price inflation declining. Monetary markets revealed more calm, characterised by a dropping trend of interest rates, liquidity situation improvement of the banking system and a more stable performance of the exchange rate. However, lending to economy continues to maintain low growth paces. Indirect and prior estimates suggest that the paces of private consumption have been controlled, conditioned by restricted sources of its financing and by the higher tendency of consumers regarding savings. The low level of capacities utilisation in economy, the low paces of loan for investments and the fall of capital and intermediate goods import, signal a contraction of private investments even during the first three months of this year. The demand for monetary assets of private sector continues to be low, thus reflecting a deceleration of the economic activity. The annual pace of lending growth, excluding the exchange rate effect, for this sector slowed down onwards, at 4.8 percent in March.