ardian fullani : overview of albania ’ s latest economic and financial developments speech by mr ardian fullani, governor of the bank of albania, on the monetary policy decision - making of the bank of albania ’ s supervisory council, tirana, 29 january 2014. * * * today, on 29 january 2014, the supervisory council of the bank of albania reviewed and approved the monetary policy statement of the bank of albania on the second half of 2013. 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 key interest rate unchanged, at 3. 0 %. the supervisory council deems that the inflationary pressures from the real and financial sectors of the economy are weak and will remain so. these circumstances require maintaining a stimulating monetary policy over the period ahead. the monetary stimulus, transmitted through the low key interest rate and ongoing liquidity injection, provides the proper conditions for meeting our inflation target in the medium term. let me now proceed with an overview of the economic developments and key issues discussed at today ’ s meeting. * * * year 2013 was a difficult one for the albanian economy. aggregate demand and economic growth remained at low levels ; inflation fluctuated around bank of albania's lower targeted band, while the budget deficit and public debt increased sharply. the unfavourable economic environment, both at home and abroad, led to this performance. moreover, albania ’ s june parliamentary elections added uncertainties to the economy and financial markets. as we have already stated, consumption and investments continue to suffer from low confidence and tight lending terms. fiscal policy is faced with a high public debt level, which has limited the possibilities for macroeconomic stimulus. on the other hand, the external environment was characterised by ongoing euro - area problems, hence limiting our export growth and making financial markets pursue conservative policies in terms of lending to developing economies. however, 2013 saw positive developments. financial markets were characterised by improved liquidity and downward interest rates, in response to bank of albania's easing monetary policy. also, introducing new financial agents and instruments has further deepened these markets. the banking system remains solid and well - capitalised, regardless of increase in non - performing loans. the current account deficit has dropped, creating better premises for a sustainable external position of the economy and stable exchange rate. these developments have contributed to maintaining macroeconomic stability. analysing the specific developments in the second half of 2013, the official data show a slowing economic

. these risk premia are also reflected in other lending terms, unrelated to the loan price, and appear tighter as compared to their historical performance. * * * under the bank of albania's baseline scenario, the economy will improve slightly during the current year. increase in exports and a better performance of consumption and investments will continue to support the aggregate demand. the monetary policy will support the domestic demand, by maintaining macroeconomic stability and ongoing injection of monetary stimulus in the economy. also, payment of arrears will help improve the balance sheets of firms and the private sector, and is expected to improve business borrowing. excluding the payment of arrears, the 2014 budget has projected a fiscal adjustment needed against the backdrop of a rapidly increased public debt. reflecting the weak economic and monetary dynamics in the country, inflationary pressures are expected to be weak. after four quarters, inflation is expected to vary 0. 7 % – 3. 8 %, with a 90 % probability of occurrence. this will require maintaining a stimulating monetary policy even in the medium term. * * * at the end of discussions, the supervisory council decided to keep the key interest rate unchanged, at 3. 0 %. given the expected inflation developments, the supervisory council deems that the monetary policy will remain stimulating in the medium term. the monetary stimulus intensity may increase further over the periods ahead, in the event the economic and monetary developments continue to shift the balance of the downside inflation risks. in any case, the bank of albania remains determined to ensure price stability, in accordance with its inflation target. the bank of albania deems that 2014 will be a turning point for the albanian economy. maintaining financial and economic stability, improving external environment, pursuing stimulating macroeconomic policies and continuing structural reforms would open the way to albania's stable and long - term development. bis central bankers ’ speeches