. the appreciation of the albanian lek over the last two years has been at the focus of the bank of albania, as a result of a comprehensive impact of this factor on the overall economic and financial indicators, including inflation. our analyses show that the appreciation trend of the exchange rate reflects the improvement of fundamental factors, such as narrowing of the trade deficit and of the current account deficit, high levels of foreign currency inflows in the form of foreign direct investments, and the improved confidence in the national currency in the domestic financial market. for as long as such appreciation reflects the effect of stable economic and financial factors, it does not lead to harmful consequences for the albanian economy. however, its effects appear in the form of reduced inflationary pressures in the domestic market. the appreciation of the albanian lek is estimated to have reduced the inflation rate for 2017 by 0. 2 - 0. 3 percentage point. in the context of the not - yet - complete utilisation of production capacities and of low inflationary pressures, the bank of albania maintained the direction and intensity of the monetary stimulus unchanged over 2017. the policy rate maintained the low historical level at 1. 25 %, creating thus the conditions for the reduction of the costs of financing for the real sector. liquidity injection in the interbank market increased in terms of average volume and duration, enabling thus a normal functioning of the financial markets. the accommodative monetary policy was successful in boosting domestic demand, which was the main driver of economic growth. the effects of the monetary policy on the economy were present in several aspects : first, lower costs for financing consumption and investments. the cumulative reduction of the policy rate by 5. 0 percentage points since the beginning of 2009, has been accompanied by the cumulative drop in interest rates on loans, 12 - month treasury bills, and deposits in lek, by 6. 9, 4. 5 and 6. 6 percentage points, respectively. low interest rates have increased demand for new loans, and decreased the cost of servicing the existing loans. in response to them : the volume of lek credit to the private sector increased by 7. 2 % in 2017, being the main contributor to total credit growth. the growth rate of the latter was only 3. 3 %, in response to the still sluggish credit demand and still conservative lending policies applied by banks. the cost of servicing the existing loans was reduced. this financial saving creates scope for increasing consumption and investments, through the use of

level of public debt. * * * honourable committee members, in response to your recommendation for on - going improvement of the monetary policy transmission mechanism, let me share with your some obstacles we have identified as well as our matrix with actions for addressing them. 2. 2. monetary policy and its transmission mechanism in our judgment, the pass - through of the monetary policy effect to financial markets and the economy, in other words the transmission mechanism, continues to suffer from three structural obstacles. the first obstacle is the relatively high level of the euroization in the albanian financial 4 / 9 bis central bankers'speeches markets and economy. the high euroization renders the monetary policy pass - through more difficult, as it reduces its scope and exposes the private agents and the financial system to exchange rate volatility. aware of this fact, the bank of albania, the ministry of finance and economy and the albanian financial supervision authority signed a memorandum of cooperation on increasing the use of the national currency ( all ) in the albanian financial system and economy. in this ( published ) document, in the framework of the de - euroization objective, all the signatory institutions commit to identifying and undertaking actions within their area of competence. in this framework, the bank of albania identified a package of measures that envisage the implementation of differentiated rates for keeping the required reserve for banks ’ liabilities in foreign currency and in the national currency. this measure is aimed at encouraging financial intermediation in lek through a relative reduction of its cost. furthermore, banks will be required to comply with higher liquidity requirements for liabilities held in foreign currency. to raise the awareness of borrowers in foreign currency about the potential risks of this form of borrowing, banks will be required to explain by concrete examples foreign currency credit risks and provide borrowers with an alternative and comparable credit in lek. the proposals for these measures are discussed with the banking industry and the necessary amendments to the regulatory acts have been prepared. the second obstacle is the still - low appetite of banks to expand lending. this behaviour continues to reflect the effect of two factors : ( i ) deleveraging policies for reducing exposure in the countries of the region, including albania, implemented by parent banks from the euro area ; and, ( ii ) perception of credit risk at home. while banks ’ balance sheets have improved and the credit risk has diminished, the policies for reducing their exposure in countries outside the eu remain conservative. such policies reflect also eba ’ s new supervisory rules