The MPC’s minutes also explained that the Bank would be taking forward operational work to assess the feasibility of implementing negative interest rates, should this be required in future. Commencing that operational work underlines the MPC’s commitment to having negative rates as a potential tool in the monetary policy toolbox. Some commentators have interpreted the start of this work as conveying a signal about the likelihood of the MPC introducing negative rates in the near-term. The minutes contained no such signal. The operational work necessary to assess the feasibility of negative rates is likely to take a number of months. After that work is complete, judgements on negative rates will depend on the economic outlook at the time and in particular on whether that necessitates further monetary stimulus. If that condition was satisfied, any decision on negative rates would then depend on whether the balance of costs and benefits from using this tool was positive and whether this cost/benefit balance favoured negative rates over other monetary tools. All three of these conditions would need to be satisfied before negative rates became a reality. At present, none of those conditions is in my view satisfied. Conclusions The economy faces uncertainties that are extraordinarily large and risks that are skewed to the downside. In this environment, caution is natural and understandable. It is important policymakers are vigilant to these risks and uncertainties and responsive to them with their policy actions.
They also depend upon other key players like the Ministry of Finance and they depend upon the efficient working of the financial markets. Other preconditions for Inflation Targeting can partly be met by the Bank of Albania. The full implementation of Inflation Targeting can therefore take place ONLY conditionally. One can compare this situation with the tailoring of a suit for a special occasion. Let me make this comparison. One can find a good tailor and ask him to make a suit for a special occasion. All measures can be taken, such as the length of the arms and the length of the legs. The suitable materials can be found. One needs the appropriate fabric, in the appropriate color. Upon all these preconditions of (1) the good tailor (2) the precise measures (3) suitable materials, the tailor can start the tailoring of the suit. But, there is still no guarantee that the suit will fit you perfect. Or, it may happen that you look appealing in the tailor-shop, but not at the day of the special occasion. For instance, the temperature may have fallen so that you need an additional coat, or even a different fabric. Or, the environment of the special occasion may make you look overdressed. You tried to make it perfect, but the environment is lagging behind. Factors that you could not influence yourself can make you look different from how you had wished to look with the new suit.