Two basic macroeconomic policies, monetary policy and fiscal policy, have contributed toward the economic activity stabilization, without exerting increasing pressures on the inflation rate. The budget expenses during 2004 have been relatively uniform throughout the year, without jeopardizing the rise of inflationary pressures in the economy in given periods. The domestic borrowing of Government has been 2.0 percent of GDP over 2004, compared to 2.9 percent in 2003. Monetary policy The monetary policy followed during 2004 maintained the easing trend of the policy being followed during 2003. Bank of Albania has cut 5 times the core interest rate over 2004, with a total effect of 1.25 percentage points. The core interest rate reached new minimum historical levels through every cut occurred during 2004, remaining by the end of the year 5.25 percent. The easing monetary policy  4  BIS Review 38/2005  has been in compliance with the inflation developments during 2004 and the positive expectations on this indicator in the future. These developments seem to have been perceived by the public, who is increasingly anchoring the inflationary expectations to the inflation target announced by the Bank of Albania. This is reflected in the increase of public interest in depositing their savings in Lek, generating also appreciation pressures on the exchange rate in Lek. The appreciation of exchange rate in Lek, accompanied by stable inflation values in the largest trade partners of Albania, has impacted the decrease of inflation value imported during 2004.
Licensing and regulatory framework During 2004 the banking system in Albania was characterized by dynamic developments, either in terms of increasing the number of banks operating in the market or in terms of extending the banking network in various areas of the country. At end of 2004 the number of banks in Albania was 16, from which 2 banks are totally with domestic capital and 14 other banks have foreign capital. On April 2004 the banking system was further consolidated with the approval on the ownership transfer of 100 percent of the Savings Banks’ stock to Raiffeisen Zentralbank, as a crowning of the privatization process of this bank. Also, the Popular Bank Jnt. Stk., the second bank with totally Albanian capital entered into Albanian market. An application for establishing a new bank with wholly Albanian capital was also submitted. This application has recently received the preliminary approval for licence, pursuant to requirements of the Law “On Banking System in the Republic of Albania”. Parallel to development and extension of the banking system and the products it offers, further improvements and amendments have taken place in the regulatory packet of banking supervision. During 2004, the Guideline “On bank regulatory capital, the Regulation “On capital adequacy”, the Regulation “On credit risk management” were revised, and the Regulation “On money laundering prevention” was adopted. Also, during 2004 work was done for making improvements in the existing Law “On Banking System in the Republic of Albania”, with the goal to realize its adoption by the Albanian Parliament within 2005.