. dwelling briefly on the fulfilment of legal obligations of the bank of albania, i would like to highlight that inflation returned within the 2 - 4 percent target of the bank of albania over the second half of the year. the relaxation of supply - side shocks and appropriate monetary conditions have been key factors enabling the balancing of demand and supply - side factors. during 2008 the key interest rate was held unchanged, at 6. 25 percent, aiming at and materializing the anchoring of economic agents ’ inflation expectations close to the 3 percent target of the bank of albania. money market activity was conditioned by the performance of monetary indicators and the real economy. in response to these developments, the bank of albania intervened in the money market by injecting liquidity of different maturity terms. also, in order to better satisfy the banks ’ needs, the bank of albania changed in november the repo auction form to auctions with undetermined amounts. in the end of january 2009 the bank of albania ’ s supervisory council decided to reduce the key interest rate by 0. 50 percentage point, recording a turning point in the monetary policy stance in terms of easing it. however, i should underline that developments during 2008 year - end and early 2009 enable an objective and real assessment of the overall economic - financial situation of the country for the present and the future. let me mention two or three of them, bringing our insight to your attention. 1. during january 2009 the logical reluctance of individuals towards their bank, reflected mainly in the form of deposit withdrawal over the period of octoberdecember 2008, came to an end. naturally this is a good news indicating that the albanian banking system has passed a difficult exam, which many of its “ colleagues ” in the region and beyond could not pass. the liquidity situation has ameliorated. symmetric distribution among banks has promoted increased volume of interbank market transactions, turning it back to normal trading levels. in response to bank of albania ’ s reaction, this has been associated with reduced interest rates for all instruments and maturities. is it accidental? is it merely destiny? no, it has neither to do with destiny, nor with turning back to any slogans of the centralised economy era. according to latest data, the banking system appears profitable. return on equity is 11. 35 percent for 2008. in the meantime, banks have extended their investments but they have also increased their equity. capital adequacy rate is 17. 23 percent of

ardian fullani : recent developments in the global and the albanian economy speech by mr ardian fullani, governor of the bank of albania, at the regional meeting, korca, 13 february 2009. * * * i feel very privileged to be among you again, in this marvellous audience of intellectual values and professionalism. it is the second time i visit korca in the capacity of the governor of the bank of albania and i observe with pleasure that this city has made admirable progress. allow me to emphasise once more that korca, this charming and hospitable city, has given and will always give me pleasure. usually favourite topics for a governor are monetary policy, financial stability, banks and money, structural reforms and economic - financial policies. however, the current situation makes inevitable the communication on recent developments the global economy in general and the albanian economy in particular are being faced with. global economy is confronted with numerous challenges. 2008 year - end and january 2009 have definitely confirmed recession in the usa, germany, britain and japan, let alone many other european emerging economies, such as ukraine, hungary, byelorussia, serbia and any other country. while risk of further financial stability shocks is overcome for the developed economies, the economic situation is deteriorating more and more, where unemployment is increasing rapidly, along with output reduction. in the meantime, the emerging economies are experiencing a deterioration of financial conditions, tightening of lending, pressure on exchange rate and at the same time significant reduced demand for some very important branches of the economy. i made this introduction to make you understand that global economy is experiencing a great contraction, which as concerns the shocking intensity and extension, has never been experienced before in the modern history or after the second world war. many taboos have fallen and continue to fall. the grave financial crisis ignited and erupted at the heart of capitalism, in the usa and from there it spread up quickly all over the world. though it may sound paradoxical, our economy has been resistant to this tsunami. according to available official data and judging upon a number of indirect indicators, we have concluded that the economic activity over 2008 performed in line with the early 2008 projections. generally the economic activity at home has been sustained by domestic financial resources, while the albanian banking system has been dynamic and effective in channelling the savings towards the funding of corporate production or household consumption this process has been also facilitated by the macroeconomic stability, which has enabled the fall of risk perception in the economy