The nature of future monetary policy will largely depend on the success of the largest central banks to get out of this situation in a controlled and timely manner, without causing excess inflation and damaging central banks hard-earned credibility. These developments will affect monetary policy in the emerging markets through interest and exchange rates, but most importantly in the way central banks conduct their monetary policy. Influenced by current practices of leading central banks, some other central banks have reoriented their objectives and engaged in activities which are traditional for development banks and governments. We have been careful to stay away from adopting and targeting such objectives not only in monetary policy but also in our macro-prudential policy. The Bank of Albania has traditionally based its policy on two important pillars. Our first focus has been to achieve our inflation target and manage inflation expectations to preserve the purchasing power of our currency. This policy has simultaneously provided necessary stimulus to economic activity. Second, our focus on banking supervision and financial stability has enhanced the confidence on our financial system and therefore increased the efficiency and credibility of our monetary policy. As I have said in April of 2008, during the annual conference with the banking system in Albania, “every investment we make today in financial stability yields increased efficiency in our monetary policy”. 2  BIS central bankers’ speeches  Recently, the Bank of Albania has introduced financial literacy as a third pillar of our policy and independence.
Our policy response was conditioned by the concerns of financial stability, assuming that interest rate cuts would speed up deposit withdrawals from the banking system. Bank of Albania took bold and decisive steps to control these problems and restore the credibility in banking system. As the effects of the fiscal stimulus began to phase out and  BIS central bankers’ speeches  1  confidence was restored in the banking system, we reduced our policy rate to its historic low in order to provide further stimulus for the economy. More importantly, our supervision of the banking system has been enhanced by establishing a thoroughly new Department of Financial Stability and by bringing financial stability issues in the decision-making process of monetary policy. As a result, the set of tools available to the Bank of Albania has extended to include several macro-prudential measures, which aim to address simultaneously both economic growth and financial stability concerns. I believe that similar steps have been taken by most central banks around the world. Willingly or not, the objective of financial stability is now seen as the central duty of our institutions. It does not matter whether the legal mandate of the central bank is amended to include this new objective or not. What matters is that financial stability is a prerequisite to overall macroeconomic stability and monetary stability.