ardian fullani : economic and monetary developments in albania speech by mr ardian fullani, governor of the bank of albania, at the press conference on the decision of the supervisory council of the bank of albania, tirana, 25 november 2009. * * * in its meeting of november 25, 2009, the supervisory council of the bank of albania analysed “ the monetary policy report for november 2009 ”. after becoming acquainted with the latest economic and financial developments at home, and following the discussions related to their expected performance in the future, the supervisory council of the bank of albania decided to keep the key interest rate unchanged, at 5. 25 percent. the supervisory council assessed that this interest rate is in line with bank of albania ’ s goal to keep inflation close to the target over the medium run. * * * economic and monetary developments over the latest months are featured by low inflationary pressures. annual consumer - price inflation for october recorded 2. 3 percent, being almost in line with its performance over the last quarter. the steady and low inflation rate has been conditioned by moderate pressures from domestic economy, due to : • economic activity slowdown during this period ; • low exchange rate pass - through of exchange rate depreciation on lek prices of import goods ; and • stabilized inflationary expectations. easing of monetary conditions by the bank of albania, through key interest rate cut in october and continuation of liquidity injecting operations have provided appropriate impulses for promoting the economic activity in the future. these impulses, as always, are administered under the conditions of an expected inflation performance close to the threepercent target of the bank of albania, and stabilized expectations of economic agents for it. the key interest rate cut by 0. 5 percentage point by the bank of albania at end - october aimed at strengthening the domestic demand and reviving the lending activity. its effect on the economy is not fully reflected yet, due to the short period of time and the time lags in transmitting the monetary policy. however, its pass - through to the money market, which constitutes the first link in the transmission chain, is a premise for its reflection to credit cost in a second round. in the meantime, our liquidity injecting operations have been successful in guaranteeing the backup of economy with funds, mainly short - term ones. allow me to make a more detailed description of the economic and monetary developments during this period. * * * at global level, the economic activity has been supported by improved

extent to which they are changes in the path of potential output. the reserve bank expresses growth in potential output as the sum of contributions from estimates of trend growth in capital inputs, labour inputs, and productivity. estimating potential output in real time is challenging. growth in potential output is not constant – its path does not in reality follow a straight line as shown in our stylised figure. views on the level or growth in potential output, both at present and over history, can and do change. views can differ from analyst to analyst or model to model, even based on the same data. the reserve bank ’ s assessment of potential output has changed the reserve bank has recently revised its estimates of potential output growth. the bank expects growth in potential output in new zealand to increase over the forecast horizon as labour and capital resources available in the economy increase. annual growth in potential output is estimated to peak at around 2. 8 percent in 2015. this demonstrates a marked improvement in growth prospects from an estimated trough in potential growth of 1. 2 percent following the 2008 / 09 recession. bis central bankers ’ speeches figure 4 : components of potential output growth source : rbnz estimates. our estimate of potential growth has increased since december, from a peak of 2. 5 percent in 2015 to 2. 8 percent. the increase in our estimate of potential growth is because : • data revisions now reveal that there has been more investment in productive capital than previously thought ; • strong business confidence suggests that future investment could be stronger than previously thought ; and • the supply of labour is expected to be stronger than previously anticipated, due in part to increased net immigration. growth in actual output is expected to have peaked at around 4 percent in the year to june, driven by strong construction spending, increasing net immigration, high export prices, and low interest rates. with the economy growing at a faster rate than potential output, inflationary pressures are expected to increase. in this environment, it is important that inflation expectations remain contained and that interest rates return to a more neutral level. structural changes and the economic cycle cause potential growth to fluctuate growth in potential output fluctuates over the medium term as the availability of factors of production is influenced by the state of the economy. let me explain this further using the example of one of the labour supply components of potential output – the labour force participation rate. labour force participation captures the share of the total working age population ( i. e. the population aged over 15 ) that are working