These two shocks in combination with the initial conditions, pushed costs upwards, carrying global inflation to levels not seen in the last 30 or 40 years, and Chilean terms of trade lower. As a result of inflation surprising to the upside, central banks started withdrawing monetary stimuli far more aggressively than previously expected. The Federal Reserve led to an appreciation of US dollar, higher interest rates, higher term premiums, and spreads, negatively affecting financial conditions for emerging markets. Exchange rate has been in a depreciatory trend for a long time, currently stands 23% above the levels before the social outburst in 2019. A significant part of this depreciation has been for idiosyncratic reasons, probably associated to high levels of political and economic uncertainty. In this context it is very likely that exchange rate passthrough to domestic inflation is higher than in normal times. 6  Let me elaborate on these developments in the FX market and local inflation for a few minutes. The global tightening of financial conditions was exacerbated by local uncertainty in Chile. As a result, since the beginning of June 2022 and until the Central Bank announced the FX intervention program, the peso depreciated by more than 25%. This pressure on the FX market had a component of non-compensated flows that led to a spike in volatility levels and frictions in the process of price formation. Given these developments there was a concern about potential spillovers to other markets, especially fixed income, and the effects that this could bring to the real economy.
The global economic crisis, which deeply affected all countries of the region, was accompanied by slowed exports, reduced remittances and other foreign currency inflows, increased uncertainty and slowed credit growth. Although 2010 is expected to be accompanied by a gradual improvement in the world economic environment, many of the factors that negatively affected the Albanian economy will continue to be present even during this year. The stimulating fiscal and monetary policy helped supporting the economic activity during 2009. However, fiscal trajectories and the need for long-term stability suggest that the Albanian economy can not rely for a long time on fiscal stimulus. Against this background, in 2010 a more conservative fiscal policy is necessary and is welcomed by the Bank of Albania. In a medium- and long-term horizon, we are of the opinion that fiscal sustainability should be ensured through a clear and prudent fiscal rule. Under new circumstances, the economic growth should be based more on boosting the private sector of the economy and bank credit plays a key role in this regard. The good financial health of our banking system and the progressive improvement of liquidity conditions and risk premiums in domestic and foreign financial markets are encouraging developments. The easing of monetary conditions and the liquidity injections by the Bank of Albania have supported and will further support this process.