of correcting foreign trade balance and reduce its influence on the economic growth for 2011. in the aspects of macroeconomic policies, these developments suggest that strong stimulating policies for the economy may be buffered by a rapid increase in imports that accompanies the increase in domestic demand. in the structural aspect, these developments reiterate the need to continue with structural reforms, which should orientate the albanian economy towards a more stable development model and a higher competitiveness in global markets. among other things, these reforms, should aim at establishing a favourable climate to attract stable capital flows as in foreign direct investments or long - term capital inflow. a further increase of aggregate demand enabled the albanian economy to move closer to its producing potential, yet remaining clearly under - utilised. consequently, decreasing pressures on inflation continued to be present even during the second half of the year. average annual inflation was 3. 1 % in the first quarter of the year, dropping by 0. 4 percentage points from its average level of the third quarter and getting closer to bank of albania ’ s target. during 2010, inflation was influenced by increased administered prices, rising trend of basic goods prices, food products and oil prices in international markets, and underestimating tendencies of the exchange rate. annual inflation increase to 3. 4 % in december was due to increased agricultural products prices, reflecting this increase in global markets. yet, anchored expectations on price stability and disinflation pressures by the real economy balanced the action of the above - mentioned factors of demand on inflation, halting their transition to second round effects and stable inflation pressures. the bank of albania considers that the inflation rate is expected to range within our target of 3 per cent, during the entire year. the increasing effect on the inflation of supply factors is balanced by the negative output gap and existence of non - utilised capacities in the economy. controlled inflation pressures and fiscal policy created space for a gradual increase of the monetary stimulus in the economy during 2010. the supervisory council of the bank of albania decided to reduce the key interest rate by 00. 25 percentage points in july, taking it to the lowest historical level of 5. 0 %. in parallel with this move, the bank of albania supplied the interbank market with the necessary liquidity for a proper functioning of financial markets. in the operational aspect, a change of form of our objective in june served to a better orientation of banking system refinancing with liquidity, resulting in a liquidity premium reduction in the

all know that higher wages or lower prices are beneficial for our personal pockets. the higher the wages, or the lower the prices, the more we can buy. but for the albanian economy as a whole, there is a flipside. this flipside is inflation. more spending will lead to higher prices in the medium to long term. and these higher prices, i can also say “ higher inflation ”, is damaging for the albanian economic growth. for this reason the bank of albania safeguards price stability. our main task is to keep prices stable. in order to do so, we set the main interest rate. the bank of albania wants to communicate better on all these monetary policy issues. it wants to explain the monetary and financial benefits at the micro and at the macro level. it wants to explain better why it is aiming for an inflation rate of 3 %. the communication strategy of the bank of albania is to explain the working of the monetary policy issues and its own tasks, to you all. the understanding of the public is needed for a good conduct of inflation targeting. credibility has to be gained. as said before, a solid statistical framework is also indispensable. reliable statistics can tell us about the past and the present. on the basis of this, the bank of albania can use its econometric models to forecast the future. the bank of albania can conduct monetary policy, and can target inflation better, in case of better forecasts. we can stress the preconditions. but the fulfillment of all preconditions for inflation targeting depends also on others in the albanian economy. under inflation targeting, the monetary policy aims at a precise inflation target in the medium term. the bank of albania can only reach this target in case the interest rate setting affects the deposits, credits, private consumption and business investment, gdp, like in a developed market economy. only in this case can monetary policy be effective. therefore, some preconditions for putting full fletched inflation targeting in place can not be met only by the bank of albania. they depend upon the development of the albanian economy, they depend upon the provision of statistics by instat and others, they depend upon the understanding of the public. they also depend upon other key players like the ministry of finance and they depend upon the efficient working of the financial markets. other preconditions for inflation targeting can partly be met by the bank of albania. the full implementation of inflation targeting can therefore take place only conditionally