, exert their impact on albanian economy mainly due to high extend of currency substitution. rapid growth of lending activity is the most notable development among domestic factors. according to our figures over the last two years credit to economy has expanded by an equivalent of 10 - 12 gdp percentage points. at this rate it is expected to reach 18 - 20 percent of gdp at the end of current year. is worth mentioning that approximately 30 percent of the outstanding credit represents consumer credit, moreover 75 percent of the outstanding stock is loaned in foreign exchange currency. this represents a very important development and deserves scrupulous attention. our main concerns relate to inflationary pressures and non - performing loans that such credit expansion might generate. in the light of these developments bank of albania assessed that existing stance of monetary policy was not providing enough stimulus to curb aggregate demand. therefore in july 2006 bank of albania decided to shift the course of monetary policy by raising the base rate ( 7 days repo rate ) with 25 basis points. we are happy to observe that market is reacting following our decision. however based on our short term inflation forecasts and in presence of several risks, some of which i already explained above, bank of albania perceives that inflation pressures for the next 12 months remain elevated. currently we are cautiously evaluating the extend of market response and assessing whether further action is needed. simultaneously bank of albania is becoming increasingly concerned regarding the quality of loan portfolio. the accelerated pace of credit expansion, is posing challenges to both banks and to supervisory authority. the response to these challenges will aim at achieving macroeconomic stability, by means of a well capitalized banking system. with this goal in mind, the bank of albania, as the supervisory authority, has intensified the dialogue with the banks in order to find an adequate consensus for : setting realistic objectives of annual activity growth ; containing the credit expansion and maintain good credit portfolio quality ; strengthen the internal control and risk monitoring systems ; and monitor carefully the capital indicators. i would like to use this floor to emphasize that bank of albania will be very firm to follow strictly all requirements that derive from the law and regulatory framework. on our part, we will make the necessary modifications in the supervisory and regulatory framework that target the above mentioned issues with a realistic and flexible approach. the sole purpose of this conformist approach to supervisory rules, is to provide a cushion for avoiding potential future disturbances in the financial stability. finally i would like to strongly emphasize for all business community, households and all other economic agents that bank of albania

suggests that aggregate demand remains sluggish and economic growth below potential. economic activity has been mostly driven by the external demand and a higher fiscal stimulus, while the contribution of consumption and private investment remains low. the latter continue to suffer from the uncertain outlook, the lower increase in disposable income, the spare production capacities, and the relatively tight lending standards. these factors have been reflected in albanian households ’ increasing propensity to save and businesses ’ reluctance to invest. external demand and the favourable weather conditions increased albanian exports by about 34. 6 % in january. in light of the poor consumption and investment levels, which have reflected in the decline of imports by 8. 1 % during this period, this tendency has improved the external position of the albanian economy further. bis central bankers ’ speeches albania ’ s trade deficit shrank 32. 5 % in january. the developments in the external sector of the albanian economy reflected in improved foreign currency demand and supply ratios, contributing, in turn, to a stable exchange rate. the albanian government pursued an accommodating fiscal policy in the first two months of 2013, expressed in the increase of public expenditure and widening budget deficit. budget expenditure increased at an annualised rate of 1. 3 % in january and february. this increase was reflected in both current and capital expenditure. amidst the sluggish economy, budget revenues continued to contract, registering an annualised fall of 0. 8 % over the months under review. this performance of public expenditure and revenues increased the fiscal deficit by about 5. 1 %. reflecting upon the expected economic and financial developments, the bank of albania has been pursuing a stimulating monetary policy. through the constant key rate cuts and liquidity injections into the banking market, the bank of albania has aimed at ensuring more appropriate monetary conditions to meet its inflation target in the medium - term period. the financial market evidences low liquidity and inflation pressures, which, in turn, have enabled the pass - through of monetary easing into the money and primary market. interbank market rates soon reflected the last key interest rate cut and the yields on government debt securities continued to drop. the falling interest rates were mostly reflected in the deposit market rather than in the credit market, signalling a more conservative bank approach to lending and a savings - oriented real sector. monetary indicators have performed in line with the developments in the real economy and the monetary inflationary pressures remain low. money supply decelerated its growth rates further in january to 4. 9 %