This can be done with the understanding that both policies, if designed and implemented properly, complement each other. Monetary policy can still pursue its course following low inflationary pressures, while the macroprudential measures can be used to address early risks developing under a low interest rate environment. On the other hand, macro-prudential measures can also be used to mitigate risks from incoming capital flows, in an environment of relatively high real interest rates. Instances of conflict among the two policies should not be neglected though. These instances can be more pronounced if the objectives of the two policies are wrongly defined in a certain financial situation, or respective tools are used out of their scope. For this reason, I believe that it might be helpful to uphold the monetary policy as the primary objective of the central bank. Stabilizing inflation should be something that central bankers may be proud of, something that we should cherish and continue to strive for. But we must recognize that financial stability issues and related macro-prudential measures have to gain significantly more grounds in central bank discussions and decisions. Clearly, the course of the monetary policy will continue to be extensively discussed in the future, based on our improved understanding of the role of asset prices and financial frictions. Incorporating financial stability objectives with the inflation targeting regime we have considered in Albania as an opportunity to understand and address economic developments and potential macrofinancial risks, in order to preserve long-run economic stability.
I believe the SSM mechanism is going to have a positive impact on central bank (and regulatory authorities) in the region discharging their responsibilities with regard to supervision and macro-prudential policies. Regulators in the region will now talk to a single “home” supervisor, and this is expected to bring more attention to their supervisory concerns. This process could be strengthened further if the central banks in the region improve their own cooperation and are able to identify common position in their communication with the European Central Bank. This could address better the concern that the single supervisor could be more distant to worries of regulators coming from small countries in the region. Being able to cooperate with a single “home” supervisor, will be instrumental in achieving faster progress in the process of regulatory convergence, and establish a more level playing field for financial institutions in the region. This is something that is being closely guided by the Vienna II Initiative. In addition to preparing implementation of various regulatory standards related with countercyclical macro-prudential tools, with particular short term importance is the issue linked with recognition and the treatment of the NPL. In the recent past, some of the countries in the region have been affected by the deleveraging process started in the EU financial system. This was mostly felt during 2012, following the higher capital requirements associated with EBA stress test of November 2011 and relevant steps taken by national “home” authorities to comply with capital requirements.