helps promote overall domestic monetary stability. but on the other hand, this choice means central banks give up from the option of running an independent monetary policy, or at least they accept to lose a large piece of this independence. consequently, they have to rely more on macro - prudential tools or fiscal policies, in order to accommodate domestic shocks or to mitigate the impact of external ones. our region offers a large variety of monetary regime choices. i will not attempt to do any analysis here but i will limit my remarks to saying that the inflation targeting and the flexible exchange rate regime we have chosen in albania has served us perfectly well. 1 / 3 bis central bankers'speeches our monetary framework has strengthened our successful transition and has increased the resilience of our economy. over the past two decades albania has enjoyed : ( i ) rapid economic growth, – with gdp growth averaging at 5 percent ; ( ii ) price stability, – with inflation rates averaging at 2. 4 percent ; and, ( iii ) a rapid monetization, – with financial assets increasing from 52 to 92 percent of gdp. furthermore, the flexible exchange rate has proved to be a reliable shock absorber. the albanian lek depreciated by around 11 % in the aftermath of the 2008 crisis. this depreciation occurred in the face of reduced external demand, decreased capital inflows, and higher risk premia in the domestic financial market. this helped us regain some external competitiveness, but it also allowed us to pursue an expansionary monetary policy and to avoid recession. 2. exchange rate movements under an inflation targeting regime an exclusive commitment to price stability does not necessarily mean that central banks can afford to ignore exchange rate movements. in small open economies, such as ours, exchange rates have both, a direct effect on prices through the imported goods, and an indirect one through their impact on cost competitiveness, external balances and aggregate demand. therefore, our macroeconomic forecasting and monetary policy analysis models prescribe an important role to the exchange rate. furthermore, in financially euroized economies, such as ours, exchange rate movements tend to have financial stability implications. rapid depreciation increase npls, while prolonged periods of appreciation tend to impose financial risks and encourage further euroization. in designing the appropriate monetary policy response, we have to distinguish between trend movements driven by fundamentals, and short term volatility driven by sporadic factors or market imperfections. inflation targeting central banks should strive to avoid leaning against trend

stability target over the medium term. under these premises, the bank of albania was forced to act. we lowered the policy rate to a new historical minimum of 1 percent. we clearly communicated the bank of albania did not assess this appreciation to be in line with fundamentals, anymore. lastly, we announced the initiation of an fx purchase program in the domestic market. this program was aimed at controlling the pace of appreciation, removing the excessive short term fx supply and reversing expectations and one - sided bets in the market. in regard to this last one, i would like to emphasize the main features of it : first, it was undertaken as measure of last resort, when the space for further conventional policy rate cuts was limited. therefore, any additional monetary policy stimulus would need to make use of unconventional instruments. second, it was clearly communicated to the market to be of both an exceptional and a temporary nature. therefore, it does not represent a shift from our commitment to a flexible exchange rate regime, and should not be represented as such. as a result, these measures proved to be efficient and now the exchange rate movements are going back to normality. thank you! 3 / 3 bis central bankers'speeches