ardian fullani : overview of recent economic developments in albania speech by mr ardian fullani, governor of the bank of albania, at the press conference on the monetary policy decision of the bank of albania supervisory council, tirana, 27 july 2011. * * * today, on 27 july 2011, the supervisory council of the bank of albania reviewed and approved the monetary policy statement for 2011 h1. based on the analysis of albania ’ s latest economic and financial developments and following discussions on their performance outlook, the supervisory council of the bank of albania decided to leave the key interest rate unchanged at 5. 25 %. the supervisory council holds that the actual monetary conditions are appropriate for meeting the inflation target and for continuing to stimulate the economic activity. let me now proceed with an overview of economic developments and main issues discussed at today ’ s meeting of the supervisory council. * * * the albanian economy continued to grow during 2011 h1, although in the presence of added challenges generated by the internal and external economic developments. tensions in global economies and financial markets, as well as increased prices of raw materials and foodstuff led to shrinkage of albania ’ s economic activity. the first factor raised the uncertainty of economic agents as well as risk premiums in financial markets, while high inflation imported from world markets decelerated domestic demand and increased inflation expectations at home. despite unfavourable factors, gross domestic product posted growth and main macroeconomic balances and financial stability remained stable. according to instat data, albania ’ s annual economic growth was 3. 4 % in the first quarter, supported by the fiscal stimulus of this period and foreign demand for albanian products. on the other side, private consumption and investments continue to be slow, reflecting cautious consumer behaviour and existence of spare production capacities in the economy respectively. the bank of albania deems that economic activity posted similar growth even in the second quarter, with higher contribution of the private sector and downward public sector and foreign demand. consumer prices were under added inflation pressures during 2011 h1, mainly due to foreign price increase in global markets. average annual inflation during the first and second quarters of the year was 4. 0 % and 4. 1 %, respectively. as regards the consumer basket items, prices of processed foodstuffs had the main impact on the formation of annual inflation. their contribution to headline inflation floated around 55 %, close to this indicator ’ s all - time record. inflation of non - food consumer goods, such as oil and other day

transparency. allow me to further deal with some of the above - mentioned issues. stable economic development of the country as we have continuously underlined in our periodical reports, the economic growth over the recent years has been strongly supported by the banking system lending. the growth of banking lending has provided an impulse of about 7 percentage points of gdp in the last five years, making a pronounced and evident contribution to the growth of consumption and investments in economy. their growth has provided room for expanding the production basis and improving the welfare. however, it has also generated macro and microeconomic imbalances. at macroeconomic level, the high consumption and investments were followed by increasing inflationary pressures and higher trade and current account deficit. these signs of overheating were clear signals that that level of consumption could not be kept for a long time, hence calling for controlling measures by the monetary authority. this is also the key to understand our prudent monetary policy during the period 2006 – 2008. the institutional investment we have made during these years in terms of consolidating macroeconomic and financial stability was rewarded with a much more moderate and milder impact of the global crisis than in the regional countries. in concordance with the modern philosophy of macroeconomic administration, the bank of albania remains committed to not allowing that rapid and short - term economic growth impair the long - term development perspectives of our country. at microeconomic level, the growth of consumption in economy was followed by increased indebtedness in albanian households ’ and businesses ’ balance sheets and by overinvestments in certain sectors of the economy. both these indicators are either at lower levels than in the regional countries, or at similar levels ; hence, they cannot be specified as problematic. however, their rapid growth rate creates the idea of a short - term vision of the economic agents, and in particular cases, even avoidance of rationality. dwelling upon household consumption, the bank of albania invites all economic agents to be more forward - looking and realistic in their consumption and savings plans. this invitation does not imply the contraction of consumption or the change of preferences related to it, but merely placing it in the context of long - term plans that equal income and expenditure at a household level. beyond the time - related dimension, as we have continuously drawn the attention, borrowers should be cautious as regards their loan currency. this implies that the matching of their loan currency with that of their income would be their best protection. in a more pragmatic approach