Increase in consumption and private investments, owing to the improved financing terms, confidence and private sector balance sheets, was, and is expected to continue to be, the main driver of the economy’s performance. On the other hand, the public sector has been and remains committed in the path to fiscal consolidation, whereas the external environment continues to face problems and pose challenges to the increase of Albanian exports. In the short run, the increase in consumption and private investments is sufficient to generate initial triggers for economic growth, but the long-term growth of the Albanian economy should rely more on the improvement of its competitive profile and growth of exports. Therefore, we deem that the acceleration of structural reforms has a unique role in supporting economic growth. Inflation continued to stand below our target. Internal inflationary pressures have been upward, but the fall in prices in global markets decelerated the return of inflation to target at home. The monetary policy stance of the Bank of Albania has become strongly accommodative. This policy stance aims at reducing the financing costs of the private sector, in order to sustain the return of the economy to equilibrium and of inflation to target, in the medium-term horizon. In our view, the indicators of economic activity and inflation are performing in the right direction; however, the sustainable accomplishment of targets will need time and will imply keeping low interest rates for some quarters ahead. Overall, the main indicators in banking system activity improved.
As such, a key lesson from the financial crisis is the need to expand the range of instruments available to policymakers, so they are better equipped to ensure the resilience of the financial system. This missing instrument problem provides the backdrop to the Government’s announcement earlier this year that it intends to create a new policy committee in the Bank – the Financial Policy Committee – which will have responsibility for conducting macroprudential policy. In 2010, quantitative easing was entered into the Oxford Dictionary of English, along with chillax and defriend (don’t ask!). I predict that 2011 may be the year of macroprudential policy. The legislation determining the precise tools and objectives of macroprudential policy is still to be enacted. But as the Governor recently emphasised, the over-riding objective is to ensure the resilience and stability of the banking system. 4 If successful, macroprudential policy will represent a significant advance. As we have seen repeatedly through history and across countries, banking crises come hand-in-hand with deep and costly recessions. Promoting the resilience and smooth functioning of the financial and banking system in bad times as well as good would contribute greatly to our future economic stability. But it would be wrong to conclude from this that macroprudential policy is likely to solve the missing instrument problem entirely. That is for at least three reasons. First, macroprudential policy is not the instrument that will solve the problem of global imbalances.