ardian fullani : overview of albania ’ s latest monetary and economic developments and outlook speech by mr ardian fullani, governor of the bank of albania, on the monetary policy decision of the bank of albania ’ s supervisory council, tirana, 30 april 2014. * * * today, on april 30, 2014, the supervisory council of the bank of albania considered and approved the quarterly monetary policy report. given albania ’ s latest monetary and economic developments and discussions on their outlook, the supervisory council of the bank of albania decided to keep the main interest rate unchanged, at 2. 75 %. the council deems that inflationary pressures on the economy remain subdued. under these circumstances, the monetary policy will continue to be stimulating in the period ahead, which will provide the necessary monetary conditions for compliance with our inflation target in the medium run. let me now proceed with an overview of economic developments and key issues discussed at today ’ s meeting. data for the first quarter of 2014 are generally in line with our previous assessments of the albanian economy and financial situation. weak aggregate demand continues to characterise the economy, further impacting almost all the economic and financial parameters in the country. in response to the weak aggregate demand, economic growth remains low and the albanian economy continues to operate below its potential. the spare production capacities, both in the labour and capital markets, are reflected in low increase of employment and production costs, followed by weak inflationary pressures. from the financial point of view, the weak economic growth puts upward pressure on the budget deficit and public debt, and creates financial difficulties for businesses. these difficulties are reflected in higher non - performing loans in the economy, and negatively affect the banks ’ willingness to lend. such problems have been and continue to be present in the albanian economy. however, new information signals that 2014 may be a turning point for the economic activity in albania. the economic growth indices, businesses ’ perception and financial markets performance improved faster than our expectations. such a development, combined with the expected improvement in the world economic outlook, subdued uncertainties, improved business climate at home, implementation of stimulating macroeconomic policies, and acceleration of structural reforms, signals that the albanian economy may gradually improve in the quarters ahead. the current risks to this scenario will remain present. in the following, i will dwell longer in describing the expected developments and related risks, while trying to highlight the policies that need to be implemented in order to avoid such risks. annual inflation averaged 1. 9 % during the first quarter

expected to be more stable. respecting this picture has important implications, which i will address later in more details, for policymakers and economic agents. latest developments in global economy are characterised by continued economic growth in most developed countries and emerging economies. in developed countries, economic growth was lower as a result of measures taken to consolidate public finances and withdrawal of fiscal stimulus. on the other hand, emerging economies maintained higher growth rates, expanding their demand for raw materials and consumption goods, thus adding global inflation pressures. bis central bankers ’ speeches economic growth is expected to continue in 2011, but uncertainties remain high. global macroeconomic misbalancing, which appeared in high levels of trade deficit for some of the developed countries, may materialise in shocks to main currencies exchange rate and free trade exchanges worldwide. in addition, concerns over public debt and fiscal stability levels for some of the euro area countries continue to affect the sensitivity of financial markets and their tolerance to risk. regardless of latest growing tendencies, the balance of inflation pressures is considered to be in check for the current year as well, as a result of continued existence of non - utilised capacities. keeping free movement of people and capital at world levels, taking timely corrective measures on public debt situation, as well as creating effective mechanisms to prevent and buffer financial crisis effects at local level, will be important challenges for policymakers. on the other hand, monetary policy of main central banks will continue to be cautious, introducing an appropriate monetary stimulus into the economy in order to promote economic activity without affecting the actual and projected inflation levels. the albanian economy recorded a positive growth during the third quarter. according to data reported from instat, real annual growth of the gdp amounted to 4. 9 %, that is, higher than figures recorded during the first two quarters of the year. economic activity improvement relied mostly on trade, tourism and other services. the industry sector maintained the same contribution to the economic growth, while construction sector activities continued to shrink for the fourth consecutive quarter. developments in demand components follow the tendencies of the beginning of the year and are in line with our previous assessments. available data suggest that economic growth continued to be stimulated to a large extent by foreign demand ; meanwhile fiscal consolidation during the second half of the year predictably yielded a slowing effect to the economic activity. private consumption and investment remained low during the second half as well, despite improvement of financing conditions for the activity. private consumption continues to be subject to a hesitating approach by consumers