of consumption in response to uncertainties about the economic outlook may become a spiral with macroeconomic indicators having mutual influence between them. contraction of consumption is associated with downward domestic demand, leading to subsequent slowdown of economic growth and lower household income. our analyses and projections have continuously suggested that the macroeconomic situation and the albanian economy have sustainable basis for long - term development. this reality should be translated into a more realistic behaviour towards higher consumption levels in the economy, within the boundaries of solid household budgets. bis central bankers ’ speeches likewise, private investments are considered as relatively low and conditioned by spare production capacities, expectations for ultimate demand for goods and services in the future, and added prudence by banks to lend. in particular, private sector ’ s weak demand is also reflected in its low demand for loans in the recent months. in response to these developments, private sector credit continued to decelerate its annual growth rates to 5. 5 % in july. the bank of albania has continuously provided the required conditions to stimulate crediting. this approach is implemented by easing the monetary policy, injecting continuously liquidity into the banking system and establishing the proper supervisory and regulatory framework. these actions have led to relatively rapid growth of lek - denominated loans against foreign currency - denominated ones. nonetheless, in our view, businesses may cooperate more closely with the banking system. on its side, the banking system should be more flexible and pay attention to macroeconomic and sectoral development perspectives, while businesses have investment opportunities in those branches of the economy whose potential is still unexploited. the third component of aggregate demand, public expenditures, had low contribution to albania ’ s economic growth. in the first eight months of the year, fiscal policy was consolidative. during this period, budget expenditures shrank 0. 4 %, year - on - year, due to lower growth rates of current expenditure and contraction of capital expenditure. during the first eight months of the year, fiscal revenues increased 3. 7 %, registering record - low growth rates. prudent expenditure policies were materialised in budget deficit contraction. in january - august 2012, the deficit was about 29 % lower than a year earlier, contributing to maintaining long - term fiscal stability. we deem that continuing to pursue this policy, oriented towards medium and long - term stability of public debt indicators, is necessary and productive given the current condition of financial markets. aggregate demand continued to support economic growth in the second quarter of

sector. verified performance of economic activity at home and the information filtered from indirect indicators have shifted downward our basic projections for the economic performance for the rest of year. this shift reflects the materialisation of some risks around the previous basic projections, being expected and factorised in our scenarios. the domestic economy is expected to slow down during the rest of year, being conditioned by the weakening of the domestic and foreign demand. given the consolidated fiscal behaviour and the slowed foreign demand, the performance of the private domestic demand will determine the economic activity growth. however, its two components, consumption and investments, have not shown any recovery signal so far. expected developments at home and abroad result in a contained balance of inflationary pressures, determining a slow increase in consumer price in the future. the demand growth bis central bankers ’ speeches below the potential of the economy in the upcoming period will continue to exercise low inflationary pressures. at the same time, the pressures generated by supply - side factors appear contained. based on the insofar developments of the determinant factors of inflation and the projections for their development in the future, with 90 % probability, inflation will range within 1. 0 % – 3. 3 % band after 12 months. * * * based on the analyses of the information set out above, the supervisory council holds that pressures on consumer prices at home remain low over the monetary policy relevant horizon ; they have been, however, on the downside over the recent months. on the demand side, below - potential economic growth will continue to generate low inflationary pressures, while shocks from the supply side are expected to be moderate. the expected developments in economy and inflation imply that the simulating nature of the monetary policy will be retained during the period ahead. the bank of albania remains heedful to future developments and new information, ready to respond in the appropriate time and extent in order to comply with its legal mission. at the conclusion of discussions, the supervisory council decided to decrease the key interest rate by 0. 25 percentage point, at 4. 0 %. this decision aims to establish the appropriate monetary conditions to comply with the inflation target in the medium run. the monetary policy, also, provides the necessary support to simulate the aggregate demand. bis central bankers ’ speeches