The Bank of Albania has been present in the foreign exchange market throughout 2003 by buying foreign exchange. The foreign exchange activity of the Bank of Albania helped in injecting liquidity in the market and it has smoothed the Lek appreciating tendencies during the year. The forecasts for the main trends and inflation for 2004, suggest that the Bank of Albania should apply a similar policy in 2004, too. Developments in the consumption prices are characterized by low inflationary pressures. Our forecasts show that the inflation target of the Bank of Albania will be met during 2003. In case no shock phenomena emerge, inflation will be under control also for 2004. Besides, the expectations on the economy seem to speak about an inflation level sticking to the present one. Liquidity ratios and structures seem to be near their historic levels, whereas interests rates were characterized by downward trends during 2003. Therefore, the Bank of Albania might reconsider the possibility of a further reduction of interest rates, a possibility consisting in the future performance of the monetary and inflationary indicators. This will be in support of the economic activity or inflation target. Judging from the analysis of actual trends, we could say that interest rates during 2004 will be generally stable or in downward trend. The analysis of monetary indicators for 2004 shows that the Bank of Albania is going to be present in the foreign exchange market so as to impede the further appreciation of Lek.
3.1  Money supply and its constituents  Money velocity is forecasted to be relatively stable during 2004. This assumption is based on keeping up the monetary developments trends of 2003 even for 2004. Thus: •  Inflation is expected to be within the target of the Bank of Albania  •  Interests rates are expected to be stable or in downward trend  •  The government demand, which is also the main source of requiring funds, is expected to be at the same level, 2.7 percent of the GDP  •  The growth rate demand for the economy is expected to be almost the same as the 2003 one. Based on these considerations, the M3 circulation velocity - as to trimesters - is presented as follows: Table 3. Money circulation velocity in 2004. (GDP as to trimesters*100 / M3) Dec '02  March  June  42.9  43.9  43.9  September Dec '03 42.9  42.9  March  June  44.1  43.3  September Dec '04 43.2  43.1  Based on this forecast, the money supply is expected to grow by 10.6 percent or by Lek 47.4 billion. 3.1.1  Money supply constituents  The ratio of money outside banks versus the money supply noticed during 2003 is not expected to undergo significant changes during the coming year. However, an upward trend of the foreign currency deposits ratio versus M3 is expected, bringing about a decrease of the Lek deposits weight versus money supply.