indicators point to its lesser impact on economic growth. the government ’ s prudent approach in the first eight months of 2010 in view of meeting the planned deficit figure for 2010 actualized in the annual reduction of public expenditure and budget deficit. the latter amounts to all 23. 2 billion, which is within the projected figure in the budget and about 51 % lower than in 2009. the 2010 state budget revision in july, which established the reduction of expenditure and budget deficit by 10 % and 23 %, respectively, is an expression of the fiscal authority ’ s firm commitment to safeguarding economic stability and ensuring fiscal sustainability in the long run. the high growth rates of exports and the contained performance of imports yielded a positive contribution of foreign demand to economic growth in the second quarter of 2010. foreign trade data on july and august attest to moderate annual growth rates of exports and positive annual growth rates of imports, hence leading to higher trade deficit in this period. the growth of exports in 2010 was fuelled by the recovery of global economy and the favourable conjuncture of prices in the global markets, the depreciation of the exchange rate, the albanian entrepreneurship efforts to expand the market and by some other factors of transitory nature. therefore, promoting exports in a stable and long - term fashion requires undertaking structural reforms, which will in turn enhance the competitiveness of the albanian economy. this would ultimately serve to the transition to a more stable economic growth model and, at the same time, to curbing the reliance on foreign financial sources. our analysis of monetary indicators concludes that the growth of money in economy is concurrent with the economic agents ’ demand for monetary assets, hence creating no room for inflationary pressures in the future. aggregate m3 ’ s average growth was 11. 2 % in july and august, being in line with the nominal economic growth and the enhanced confidence in the banking system. its growth during this period was mainly determined by the increase of the banking system ’ s net foreign assets. private sector credit grew by 9. 8 % y - o - y, close to the previous quarter ’ s rate. although the better liquidity figures and the improved banks ’ balance sheets led to higher banking supply and provided greater room for lending, the latter has progressed at moderate rates. our analyses on lending in economy show that demand remains contracted and the number of worthy projects to lend is still low. the foregoing remains a constant concern for the bank of albania. to this purpose, alongside the banking system, we

are considering the required measures that may lead to the growth of lending in line with the cyclical and structural needs of the economy. economic and monetary developments elaborated above yielded an environment of contained inflationary pressures. average annual inflation marked 3. 4 % in the third quarter. against a background of below - potential economic growth, and given the absence of monetary - related inflationary pressures, inflation was largely affected by the rise in administered prices. the contribution of the latter ’ s rise to headline inflation is 1 p. p. in the absence of second - round effects, the effect of the rise in administered prices is expected to be transitory, while the inflationary pressures arising from domestic demand remain well contained. on the other hand, the depreciation of the national currency has been declining, hence offsetting the rise of primary commodity prices in the world markets and the increase of inflation in albania ’ s main trading partners. the absence of inflationary pressures in the medium run and the contained fiscal policy provided room for pursuing a stimulating monetary policy that sustains economic activity. in july, the supervisory council of the bank of albania cut the key interest rate by 0. 25 p. p. bringing it to the historical low of 5. 00 %. in addition, the bank of albania continued to supply the banking system with the required liquidity in order to ensure the smooth operation of the money markets and to enhance financial intermediation in economy. the favourable liquidity situation facilitated the rapid transmission of the key interest rate cut to the interbank and the primary market, hence allowing for the reflection of this cut in other interest rates in the economy as well. the bank of albania considers that the inflationary pressures remain well contained all through the time frame of the monetary policy effect : the effect of supply - side factors is expected to be offset by the downward pressures arising from the performance of demand in economy. the projections for inflation and inflationary expectations remain well - anchored around the bank of albania ’ s target. therefore, the central bank considers that monetary conditions in economy are adequate to warrant the safeguard of price stability in the medium - run and to boost economic development further. the bank of albania will, in response to actual and expected economic and monetary developments, continue to pursue a prudent monetary policy, thus providing the required monetary conditions for achieving the inflation target and safeguarding macroeconomic stability.