activation of the demand for loans and the parallel easing of lending conditions as applied from the banking system. bank of albania deems that banking system should reveal more visionary in assessing potential sectors of economic growth and to take a more active role in encouraging the economic activity. annual inflation in february 2010 pointed to 4. 4 %, exceeding by 0. 4 percentage points the upper limit of the bank of albania target ’ s tolerance. the annual average inflation pointed to 2. 6 %. the recent developments of inflation have reflected the statistical impact of the comparison to a relatively low prices base in 2009, the more full transmission of exchange rate depreciation on consumer prices and the administrative increase of energy, since january 2010. the later factor provided an effect of about 0. 5 percentage points on inflation level, being the main reason of exceeding the level of 4 %. on the other side, the increasing tendency of food goods inflation is owed to the global conjuncture of goods prices, which is revealing a gradual monthly increase since the half of 2009. our analysis recommends that the increasing trend of inflation owes mainly to supplying factors, which are estimated to manifest an uneven nature and a short - term action in time. the bank of albania expected these developments, being factorised on our projections regarding inflation and communicated timely and in terms of transparency to the public. in medium term period, the growth under potential of the albanian economy owing to the slowdown of the domestic and external demand, shall establish an environment of low inflationary pressures, which are expected to balance the pressures deriving from the supply direction. this assessment is also supported by the sustained developments and at low historic rates of the long - term component of non - tradable goods inflation, as the most directed transmission of inflationary pressures generated from the internal demand in economy. the rates of both key inflation and of the non - tradable goods in february pointed to 1. 1 and 2. 3 %, respectively. throughout the discussions on the current and expected economic developments, the supervisory council of the bank of albania concluded that the inflationary pressures balance in medium term horizon is in line with the bank of albania inflation target, notwithstanding the latest tendencies of consumer prices ’ inflation. the assessments regarding the demand slowdown and the increase of negative production gap, the more controlled development of exchange rate and, the equilibrated expectations of economic agents about inflation, are factors which shall condition the development of inflation within the target of the bank of albania. at the conclusion

mid - 1980s and the present weakness of the euro are well - known examples. the importance of such unwarranted disturb - ances is most severe for small open economies such as denmark. the exchange - rate movements depicted in chart 4 and chart 5 indicate that sweden – a small open economy with a floating exchange rate and low inflation – receives far more noise from exchange - rate fluctuations than denmark. the fixed - exchange - rate policy cannot ensure a stable nominal effective exchange rate or a stable real effective exchange rate. however, the weight to the euro in the effective danish exchange rate is slightly below 60 per cent. thereby, the fixed - exchange - rate policy yields a nominal hedge in a very important market for the danish economy. this planning stability is beneficial to the business climate. a fixed - exchange - rate policy based on the nominal effective exchange rate would not offer such a hedge against any specific currency. real effective exchange rate in sweden and denmark chart 5 1980 = 100 sw eden note : 3. denmark the real effective krone rate is based on consumer prices. most recent observation is june 2002. monetary policy implementation and erm ii the krone has remained close to the central parity against the euro since erm ii and the third stage of the european monetary union came into operation on 1 january 1999, cf. chart 6. erm ii band and the danish krone vis - a - vis the euro chart 6 dkk / eur 01 - 99 07 - 99 dkk / eur 01 - 00 cent ral rat e 07 - 00 01 - 01 07 - 01 01 - 02 07 - 02 fluct uat ion band in order to achieve exchange - rate stability, the interest rates of danmarks nationalbank are adjusted in step with those of the ecb, with due consideration of conditions in the foreign - exchange market, cf. chart 7. a tend - ency for the krone to weaken will be met by a widening of the interest - rate differential, and vice versa. interventions in the foreign - exchange market are used to dampen fluctuations in the krone rate. key monetary policy interest rates in denmark and the euro area chart 7 per cent 6, 0 5, 5 5, 0 4, 5 4, 0 3, 5 3, 0 2, 5 2, 0 jan apr jul oct jan apr jul oct dk lending rat e jan apr jul oct jan apr jul euro main ref inancing / minimum bid rat e euro marginal rat e in