, growth rates acceleration will be conditioned by the resurgence of the private sector. in this regard, the bank of albania deems that the economic climate provides the conditions and space for even higher consumption and private investment growth. despite positive growth rates, the albanian economy is expected to remain and operate below its potential, with the demand conditioning the continuation of the negative output gap and contained inflationary pressures. on the other hand, inflation performance will continue to be under foreign prices pressure for the upcoming period as well. in the absence of unexpected developments, the effect of shock from foreign prices is expected to fade away while the effect of administered prices increase is expected to be neutralised during the third quarter of the year. therefore, inflation is foreseen to return within the bank of albania target band by the year - end. although risks about this base scenario are added as a consequence of uncertainties of the global economy, they remain balanced. * * * drawing on the information above, the supervisory council of the bank of albania deemed that inflationary pressures are, in the short term, high, but with a downward trajectory ; in the medium term they remain controlled. in the absence of unexpected shocks, inflation is expected to be within the target band of the bank of albania along the time horizon of monetary policy action. inflationary expectations of economic agents continue to be within the target range, which is essential under the conditions of the simultaneous presence of the negative output gap and high foreign prices. the bank of albania is fully committed for anchored inflationary expectations in compliance with its inflation target and stands ready to accomplish its mandate, by preventing materialisation of constant pressures on inflation. following 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. 25 %. bis central bankers ’ speeches

the domestic currency demonstrated stability, slightly depreciating in effective and nominal terms in may. future exchange rate performance will be conditioned significantly by external economy balances and individuals ’ preferences for their financial asset portfolio structure. public sector expenditures were an important stimulus of economic activity during the first months of the year. in january – may, these expenditures were up by 10. 3 % year - on - year, while decelerated fiscal income reflected the private sector ’ s low demand. these developments were reflected in the budget deficit of about 1. 7 times higher compared to a year earlier. expenditure growth slowed down during the second quarter. this behaviour is expected to continue for the rest of the year, conditioned by the commitment to respect the 2011 deficit and public debt target. this fiscal policy approach is expected to be formalised in the july budget revision, which should take into consideration the public debt ’ s long - term stability. against the above - mentioned developments, monetary indicator analysis confirms controlled inflationary pressures originating from the domestic economy. money supply annual growth was 12. 2 % in april, staying close to its historic trend. monetary expansion reflected the accumulation of liquidity in the banking system, revealing the households ’ preferential behaviour towards saving. our assessments point out that monetary expansion is compliant with the private sector ’ s demand for real money, thus indicating controlled monetary - related inflationary pressures. the contained behaviour of the private sector about spending and investing is reflected also in a low demand for bank lending. annual growth rates of lending to the private sector ranged 10 % – 12 % in the four first months of the year, on average, only 2 percentage points higher than a year earlier. the business bis central bankers ’ speeches demand to cover liquidity needs was their main driver for loans, while lending to households increased by low rates. developments in financial markets speak of low risk premiums and liquidity. short - term interest rates in the inter - bank market stayed close to the key interest rate and demonstrated contained volatility. in the primary market, government securities yield surged in the last three months, in response to a higher demand of the public sector for funding. nevertheless, their curb remains lower in comparison with a year earlier, pointing to more favourable financial conditions in the economy. looking ahead, assessments and projections of the bank of albania suggest continuation of positive growth in the upcoming period. in a longer - term horizon, under diminishing external impulses to the aggregate demand and a more contained fiscal behaviour