Should any significant deviations between actual inflation and the monetary policy target occur, the Bank will provide an assessment of the reasons for this. 2  BIS Review 74/2001  Even though there was confidence in the implementation of monetary policy prior to the change in regulation, the communication of Norwegian monetary policy was clearly facilitated by the Government quantifying an inflation target. However, in our view the most important aspect of the shift to an inflation target is that political authorities clearly recognise that low inflation is a benefit in itself. History has shown that high inflation does not lead to sustained higher economic growth or lower unemployment. This recognition and the positive inflation track record in Norway since 1990 provide the Bank with a sound basis for conducting monetary policy. Implementation  In the light of the orientation of monetary policy in recent years, the new guidelines have been applied without any significant change in the conduct of monetary policy. The key rate is set on the basis of an overall assessment of the inflation outlook. Higher interest rates curb demand for goods and services and reduce inflation. Lower interest rates have the opposite effect. If evidence suggests that inflation will be higher than 2½ per cent with unchanged interest rates, the interest rate will be increased. If it appears that inflation will be lower than 2½ per cent with unchanged interest rates, the interest rate will be reduced. There is symmetry here.
Prudential regulations have been tightened in response to rapid credit growth and intensified competition in the banking system. We are working to ensure proper supervision over the parts of the Albanian financial sector that are outside the Bank of Albania’s jurisdiction, while trying to preserve fair competition across the sector. The Bank of Albania is assisting the MoF to improve its debt-management capacities. I believe our hard work will be reflected in a satisfactory rating of our sovereign debt, due to be carried out early next year. The competence, credibility and professionalism of our monetary policy provide necessary conditions to support and guarantee achievement of economic goals and successfully fulfill economic convergence toward ERM II preconditions. However, our achievements will not last in the absence of a careful fiscal policy and conservative fiscal expansion. The Bank of Albania is not the only major economic player. Therefore, we must find and implement clear anchors to guarantee the compliance of other players’ economic policies. In this respect, we can transform ERM II preconditions into an important foreign anchor to preserve the credibility of our reforms in the future. As a pre-accession country, Albania will be facing ERM II problems in the medium term. We are well aware of the difficult road ahead and the challenges we will face. Nevertheless, we remain committed toward economic and legal reforms considering it as a natural approach toward EU accession process. ***  BIS Review 1/2007  3  References Begg, B., Einchengreen, B., Halpern, L., Hagen, J. Wyplosz, CH. (2002).