and will be reliable and transparent for all albanian and foreign economic agents. developments in the external sector of the economy signalled a sluggish foreign demand in the third quarter of the year. though trade deficit dropped, the external sector impacted negatively on the economic growth due to lower tourism revenues. in october and november, the external trade data show ongoing annual nominal contraction of the trade deficit, at 11. 9 %. this contraction was due to increase in exports by 12. 0 % and decrease in imports by 2. 0 %, over this period. the albanian economy's capacity to maintain and speed up the positive export growth rates will determine the country's medium - term and long - term economic growth. in the medium term, increasing exports helps offset the domestic demand sluggishness, while in the long term, increasing competitiveness of the albanian economy in the world markets should be to the core of albania's new economic growth model. the low demand for consumption and investment, and the banks'conservative lending policies, have slowed the monetary indicators. the increase in the money supply slowed down to about 2. 5 % in october and november due to private sector's lower demand for funding. lending to economy continued to contract and in november, it was 2. 4 % lower than a year ago. the above monetary and economic dynamics has exerted weak inflationary pressures. the low aggregate demand has expanded the negative output gap. the labour market pressures have been subdued against a setting of unchanged unemployment rate, moderate wages, and partially - used capacities. these developments have affected the control on output costs and profit margins, and are reflected in low core inflation rates over this period. also, imported inflation has been downward due to lower primary commodity prices in the international market and stable exchange rate. based on the economic outlook and aiming to encourage aggregate demand, the bank of albania lowered the key interest rate by 0. 5 percentage points, at 3. 0 % in the fourth quarter. also, bank of albania's monetary policy decisions are associated with ongoing liquidity injections and orientations toward the future monetary policy stance. this policy has bis central bankers ’ speeches managed to keep liquidity premia and inflation in check, by contributing to lowering the interest rates in the interbank, government debt security, lek loan and deposit markets. however, the lek loan price has not fully reflected our monetary policy, indicating the presence of high risk premia and containing the monetary stimulus transmission to the economy

prices ; hence, restructuring measures were necessary to address inherent risks in the financial institutions, which were coming from : bis central bankers ’ speeches • high leverage ; • falling asset quality ; • funding constraints ; • insufficient capitalization ; • fragmentation and conflicts of interest in supervision ; such measures were associated with public intervention in the financial system ( mostly banks ), increasing further the linkage between “ banks and sovereigns ” and creating more “ moral hazard ”. at this point, a financial regulatory reform was necessary at international level, to address such risks. under the guidance of the g20, broader and more comprehensive regulatory reforms were designed, with a special contribution by basel committee, the financial stability board, imf / wb group and many other. such reforms were aiming to : • strengthen the resilience of the financial system ; • avoid future similar crisis ; in more details, such reforms included : • improving the surveillance superstructure of the financial system, through : – establishing institutions with macro - prudential powers to monitor, assess and address systemic risk ( in eu – esrb, ecb ; in us – fsoc ; in uk – fpc ; etc. ) ; – reducing fragmentation and possible conflicts of interest in supervision, and achieve supervision consistency : notably in eu through the “ banking union / single supervisory mechanism ” : ecb – eba – esrb ; in uk – boe – pra – fpc ; – new directives to ensure timing and effective restructuring of banking business ( brrd ) ; – better design and use of tools to assess resilience of financial institutions to risks, like stress - testing ( in eu – eba / ecb ) ; • improving the financial system infrastructure, through : – better protecting the “ core ” banking activity from other activities like “ proprietary investment ” through new rules and proposals ( in us – the “ volcker ” rule ; in uk – proposals of the “ vickers ” commission ; in eu – proposals in “ liikanen ” report ) ; – improving clearing and settlement of securities transactions and streamlining financial reporting ; – improving deposit guarantee schemes • improving in banks under “ basel iii ” : – the quantity and quality of the capital ; – the funding structure – their risk management requirements and capabilities ; to summarize, the legacy of previous financial excesses and the following crisis, is a changing financial landscape ultimately determined by international financial regulatory reform, local financial market characteristics and the crisis impact itself. bis central bankers ’ speeches following