ardian fullani : economy and key interest rate in albania speech by mr ardian fullani, governor of the bank of albania, at the press conference on the monetary policy decision - making of the supervisory council of the bank of albania, tirana, 28 july 2010. * * * in its meeting of 28 july 2010, the supervisory council of the bank of albania analyzed and approved the monetary policy report of the second quarter of 2010. after scrutinizing the latest economic and financial developments at home, the future outlook and the expected risk balances, at the end of discussions, the supervisory council of the bank of albania decided to cut the key interest rate by 0. 25 percentage points. following this decision, the interest rate on the repurchase agreements of oneweek maturity term is 5 %. * * * economic and monetary developments of the first two quarters of 2010 were by and large in line with bank of albania ’ s forecasts. economic activity posted positive growth though at decelerated rates. the inflationary pressures have been downward and the external balances of the albanian economy have recovered. the financial markets were provided a breathing space and featured : lower risk premia, improved liquidity figures, downward interest rates, and relative exchange rate tranquillity. the upcoming period is expected to feature similar characteristics. the performance of the albanian economy may be considered as positive, particularly when put in the context of the developments in global economy and the regional countries, and considering the challenges faced over this period. the latter represented a tough test for the sustainability of the albanian economy, both at a macro and micro level, and in terms of the institutional and political capacities of economic management. however, when viewed elaborately, economic and monetary developments in the first half of the present year provide numerous shadings for their interpretation. the albanian economy still suffers the low domestic demand and activity financing - related concerns. economic growth and economic development are not balanced yet for all the sectors of the economy. they have mainly relied on foreign demand rather than domestic demand and they attest to a more dynamic performance of industry and services and slower performance of agriculture and construction. in addition, economic growth has been coupled with slower labour market and employment figures, hence increasing the non - utilized human and capital capacities of the albanian economy. on the other hand, economic performance has confirmed the importance that the preservation of macroeconomic balances has to our country ’ s stable and long - term development, as well as the need for the

and at wellsuited maturity terms, in order to boost activity in the financial markets and lending to the economy. in response to this policy, the interest rates in the interbank market were stable, reflecting largely the stable liquidity position in the system, while long - term interest rates maintained a downward trend as a result of lower risk premia. in the primary market, government security yields of all maturity terms continued to decline in the second quarter. in addition, this period featured further growth of banking system deposits and their time - related shift to time deposits. once household savings placed in the system increased, the interest rates on deposits showed a downward tendency. on the other hand, private sector credit continues to post low growth rates despite the improved liquidity figures and the lower activity financing costs. the annual growth of private sector credit averaged 9 % in the second quarter of 2010. the credit market continues to feature volatile interest rates and tight lending conditions. however, the latest months ’ developments show positive signals, particularly in terms of the rather higher credit growth rates, its greater orientation towards supporting investments and the recovery of foreign currency lending to economic units that enjoy natural hedge against exchange rate risk. the bank of albania has been promoting this performance and will continue to do so, and encourages the banking system and borrowers to work harder in finding effective forms, instruments and practices that fuel credit. * * * today ’ s decision - making of the bank of albania reflects a comprehensive analysis of : the economic and financial developments that have been characterizing the albanian economy in the latest months, the developments in the region and broader, the balance of risks, and future forecast and expectations. the bank of albania believes that the banking system will transmit this decision to the economy timely and at the right intensity. the growth in deposits, the banking system ’ s liquidity position and the downward government demand provide real room for greater orientation of funds to private sector lending. the bank of albania will also pay due attention to foreign currency intermediation by the banking system. the performance of foreign currency - denominated deposits and a wide array of other developments provide a safe ground for their channelling into the economy at a lower cost. this will be followed up closely in the remaining of 2010 and beyond. the bank of albania considers that the monetary conditions and the demand - supply ratios in the major markets are well - suited to maintain price stability in the medium run. our monetary policy will continue to be prudent in view of meeting the