ardian fullani : overview of albania ’ s recent economic and financial developments speech by mr ardian fullani, governor of the bank of albania, on the monetary policy decision - making of the bank of albania ’ s supervisory council, tirana, 27 june 2012. * * * today, on 27 june 2012, the supervisory council of the bank of albania reviewed and approved the monthly monetary policy report. based on the analysis of albania ’ s latest economic and monetary developments, and following discussions on their performance outlook, the supervisory council of the bank of albania decided to keep the key interest rate unchanged at 4. 25 %. the supervisory council deems that the monetary conditions are adequate to meet the inflation target in the period ahead, while they provide the needed monetary incentive to support the domestic demand. let me now proceed with an overview of the economic and monetary developments and key topics discussed at today ’ s meeting. * * * annual inflation marked 1. 9 % in may, continuing to pursue a gradual upward trajectory. inflation rate in may was largely driven by the rise in food prices, whose performance triggered inflation ’ s behaviour over the last two years. the impact of other commodities ’ basket on inflation remains stable and slightly volatile. within the macroeconomic context, the analysis of economic and financial developments reveals the lack of strong and sustainable inflationary pressures, which is reflected on the current low annual inflation rate. as aggregate demand increased below its potential, free production capacities were created in the economy, generating weak pressures on the increase in wages. imported inflation remains moderated, owing to the contained performance of core commodity prices, the moderated inflation in albania ’ s trade partner countries and the stable exchange rate. also, economic agents ’ inflation expectations remain low, administered prices provide a minimum effect, and monetary developments and liquidity in the economy are in line with the mid - term price stability. data available on the economic performance for the first five months of 2012 show that economic expansion slowed down. estimations based on indirect, qualitative and quantitative data reveal a sluggish production sector in the first quarter of 2012, whereas services improved compared to the fourth quarter of 2011. on the demand - side, economic developments in this period show a moderated foreign demand and a sluggish domestic demand. the latter is determined by the weak performance of private sector ’ s expenditures and investments, and the low fiscal stimulus. january – may 2012 is characterised by a consolidating behaviour of fiscal policy. budget deficit decreased

is confirmed by the conclusion in an interesting speech delivered by andrea enria, the chair of the ecb's supervisory board : " market turmoil always triggers political debates on regulatory reforms, but i think that we should rather focus on the effectiveness of supervision. the most convincing explanation of the rationale of prudential supervision was given in the seminal book by dewatripont and tirole published in 1994 : the supervisors'task is monitoring that banks are safe and sound on behalf of depositors, as the latter are too small and dispersed to be able to understand the risks a 2 / 5 bis - central bankers'speeches bank is taking. effective supervision is the best reassurance for depositors. and in order to deliver effective supervision we need to have a razor - sharp focus on risks, ask difficult questions and request fast and satisfactory remediation of the weaknesses the supervisors identify when performing their job. [... ] notwithstanding the significant improvements made by european banks to strengthen their capital and liquidity position and improve their asset quality, the current events confirm that strong, demanding supervision is needed more than ever ". in serbia we have nine systemically important banks, of total 21 banks that constitute our banking sector. there is not a single bank that we treat as too small or insignificant in our supervision. we carry out regular and extraordinary supervisions of banks'operation, on - site and off - site. we analyse all aspects of operation of each bank, including risk management, with an eye on the system as a whole. the data and in - depth analyses confirm that serbia's banking sector, which operates in line with domestic regulations, is highly capitalised and highly liquid, which is a guarantee of security and availability of deposits at any moment. in late 2022, banking sector assets were by 33. 7 % higher compared to 2019, reflecting primarily boosted financing of the corporate and household sectors, i. e. rising lending activity. this helped realise the full potential of the two - way link between the financial and real sectors. let me conclude the second topic. the domestic banking sector is highly liquid and solvent. all relevant banking indicators are multiple times above the national bank's regulatory requirements. the sector showed strong resilience during the pandemic, as well as during the past several crises, owing to good regulations, good supervision, and good risk management. furthermore, the national bank of serbia has demonstrated its readiness and capacity to respond promptly in order to protect