pressures are characterised by short - term supply shocks, while the generated inflation by domestic demand is low, as reflected in the relatively stable situation of core inflation. this performance is conditioned by the existence of free capacities in the albanian economy as well as contained monetary expansion and anchored inflationary expectations of consumers, businesses and agents in the financial market. the bank of albania deems that, in general terms, these factors will continue to be present during 2011. on the other hand, the bank of albania, in its inflation outlook, has factored the projections on the situation of fuel and food items made so far by the imf and fao. in the absence of added and unpredictable supply shocks, or second round chain phenomena, inflation rate is expected to be in line with the bank of albania target. bis central bankers ’ speeches i would like to continue with a more detailed analysis of current and expected developments in the albanian economy and financial markets, also assessing their implications on the expected consumer price inflation. economic activity in the absence of direct data and based on a number of indirect indicators, the bank of albania assesses that the albanian economy continued to grow during the fourth quarter of 2010. the economic growth was supported mainly by the external demand for albanian exports. however, domestic demand has shown lately signs of recovery, as evidenced by the positive trend of bank lending, indirect consumption indicators and improved economic sentiment indicator of the albanian businesses and consumers. consumption and private investment, the two most important components of aggregate demand, experienced a slow progress during 2010. while disposable income of the albanian consumers is considered to have increased in real terms, high uncertainty and tightened lending terms and conditions by the banking system deterred the domestic consumption. on the other hand, the albanian businesses encountered insufficient demand for them to use their full capacities and higher financing costs. this situation has most affected sectors of the economy such as construction, which relies totally on domestic demand and, at a lower extent, other sectors such as industry, which generates most of its activity from external demand. under these circumstances, investments pace was relatively lower, compared with previous years. the bank of albania considers that domestic consumption and investments will have a better performance during the current year. conditions for funding the private sector demand appear improved, while risk premia in financial markets appear lower. uncertainty for the future should gradually decrease. additionally, the expected positive influence of external demand and fiscal policy during 2011, are expected to stimulate domestic demand. correction of fiscal conduct is followed by

the growth rate of loans to the private sector reached 10. 6 % year - on - year. in addition to private businesses, which were the main users of credit funding during 2010, positive signals come from household consumers, whose demand for loans increased during the last quarter of 2010. financial markets are characterised by dropping risk premia and liquidity, reflected in a further decline of yields in the primary market and interest rates in albanian lek deposits and loans. in the inter - bank market, short - term interest rates remained close to the key interest rate and showed low volatility. foreign exchange trading in the domestic market was also calm. the albanian lek continued to depreciate in annual nominal terms against foreign currencies, although more slowly compared to 2010. * * * taking into account the information summarised above, the supervisory council deemed that inflationary pressures for the medium - term horizon remain contained. consumer price situation is expected to be under the pressure of price increases in world markets, but, in the absence of second round effects, their impact is expected to be transitional. on the other hand, the actual insufficient demand will continue to condition levels below the potential domestic capacity utilisation, exercising downward pressures on inflation. inflationary expectations continue to be anchored around the inflation target of the bank of albania. in the absence of unexpected shocks to the economy, inflation is expected to be close to the bank of albania mid - term target. the bank of albania will continue to monitor the nature of these external shocks and their impact on prices in the domestic context, for a timely reaction in order to eliminate stable inflationary pressures. after the discussions, the supervisory council concluded that the monetary conditions remain appropriate for meeting the medium - term inflation target and decided to leave the key interest rate unchanged at 5. 00 %. bis central bankers ’ speeches