movements in the exchange rate. as long as these movements are in line with fundamentals, these trends represent structural adjustments that do not move the economy away from equilibrium. on the other hand, short term exchange rate volatility is normal in a fully flexible exchange rate regime. the reaction of central banks should depend on their impact on inflation, which in itself depends on the intensity and duration of such volatility. the stronger the duration and the higher the intensity of the shocks, the bigger would be the expected impact on inflation, the greater the risk of rapid shifts in inflation expectations, and the higher the need for a systematic reaction of monetary policy. 3. exchange rate movements and the bank of albania reaction to them the above mentioned facts have guided our reaction to the recent appreciation of the exchange rate in albania. the trend appreciation started around the second half of 2015, but it gathered considerable pace in 2018. lek appreciated on average by 2. 3 percent against the euro in 2016 and 2017, while it appreciated by around 7 percent during the first half of 2018. our analyses indicate clearly differing explanations for the pre and post 2018 appreciation. the 2016 – 2017 lek appreciation has been largely in line with improving fundamentals in the economy. some of these structural improvements include : declining current account deficits, on account of improved exports ; increased capital inflows, on account of high fdis ; reduced financial market risk premia and increased confidence in our financial institutions. 2 / 3 bis central bankers'speeches on the contrary, the rapid appreciation we experienced in 2018 has been largely a fx market driven phenomenon. news of a sudden and sustained influx of foreign currency induced onesided expectations in the fx market. these expectations were reflected in an accelerated supply of foreign currency and delayed demand for it, generating a vicious cycle of continued appreciation. the bank of albania did not react upon the real appreciation trend of the past two years. while minor miss - alignments were still present, we assessed the trend was largely driven by improving fundaments. thus, it allowed us to focus our monetary policy on achieving our 3 percent inflation target. we also did not react upon the recent financial market driven appreciation, in full consistence with our monetary policy and exchange rate regimes. we expected for the market to self - regulate and contain these shocks. however, this did not prove to be the case and the exchange rate appreciation accelerated. a re - assessment of its implication on price stability indicated this appreciation was not compatible with our price

the pace of change in the size of the portfolio, the albanian banking sector continues to lend. to illustrate my point, only in 2018, the banking sector has granted new loans amounting to around eur 1. 1 billion ( equivalent ) to fund business investments, house purchase and consumption. the second moment pertains to the responsibility and the diligence of the banking sector vis - avis lending. as the administrator of public savings, responsibility and due diligence in lending are non - negotiable conditions. measures undertaken to bolster the short and medium - term development of albania should not run against its financial stability in the long term. yet, in coherence with my observations above, i judge that the banking sector should pay more attention to lending. this judgement is based on two theoretical premises and is enabled by an important precondition. first, a more proactive approach to lending is beneficial for the sustainable and long - term development of the banking industry. low return on assets is one of the problems facing the banking sector in albania, in the region, and beyond. such low rates of return – which in albania are induced also by ample foreign currency liquidity and will continue to be favoured by the reduction trend of the public debt and domestic borrowing by the government – increase the vulnerability of the sector to shocks. against this backdrop, the banking sector should increase its orientation toward lending as an instrument to enhance asset profitability and boost its longterm stability. in the same vein, leaving potential sectors or clients outside the focus will push them to turn to other segments of the financial market. this implies less income for the banking sector not only in the form of less income from lending, but also in the form of less income from other products in the package of services that banks offer to clients. second, a more proactive approach to lending is beneficial for the sustainable and long - term development of the albanian economy. our analyses, based on the available information and the bank lending survey for albania suggest a divergence in the pace of improvement in loan demand and supply. while this divergence does not seem to have, as of yet, a substantial impact on 2 / 5 bis central bankers'speeches lending, if it deepens further it will jeopardise the performance of credit and the pace of economic growth. in this light, i would like to underline that a series of studies, both at home and abroad, emphasise the fact that the albanian economy would