Ardian Fullani: Overview of Albania’s latest monetary and economic developments and outlook Speech by Mr Ardian Fullani, Governor of the Bank of Albania, on the Monetary Policy Decision of the Bank of Albania’s Supervisory Council, Tirana, 30 May 2014. *  *  *  Today, on 30 May 2014, the Supervisory Council of the Bank of Albania reviewed and approved the monthly Monetary Policy Report. After discussing the recent economic and monetary developments and their outlook, the Supervisory Council decided to lower the key interest rate by 0.25 percentage point, to 2.50%. The key rate decrease aims at creating more favourable conditions for inflation to return to our target in the medium term. The decision reflects our assessment and projections for low inflationary pressures in the quarters ahead, in response to the weak aggregate demand and the downward trend of inflation in Albania’s trading partners. This move contributes to boosting domestic consumption and investments, aiming at a fuller utilization of production capacities and a faster return of inflation to our target. (Let me now proceed with an overview of economic developments and key issues that were discussed at today’s meeting.) *** Annual inflation rate was 1.7% in April, slightly down from the average rate recorded in the first quarter of 2014. In the last months, the dynamics of inflation have been largely determined by the performance of food prices.
Figures differ across countries – with the lowest numbers in the Czech Republic (around 20 percent) and the highest in Romania (above 50 percent) – but the tendency is the same. Referring to the benefits of euro adoption, one of the prominent ones, namely the lower financing costs, is no longer obvious. The incomplete institutional setup of the European project in general and the European Monetary Union in particular – weak fiscal rules and the lack of any transnational instruments that would have enabled monitoring cross-border private capital flows – gave rise to a number of vulnerabilities which the recent crisis has exposed. To be more specific, what sets the European Union apart from the other industrialized economies is precisely the fact that the initial banking crisis which hit everybody here gave birth to fears of sovereign default, which reinforced banking system vulnerability and sapped investor confidence further, thus deepening the recession. The consequence of all that was the financial fragmentation issue, which is precisely the reason why the lower financing cost benefit of euro adoption, seems to have vanished. Another unfortunate consequence was that the benefits brought about by commercial integration were significantly diminished by lack of growth in the euro area. The fixes proposed to the institutional architecture of the European Monetary Union, such as the setup of the European Stability Mechanism and even that of the Banking Union, brought 2  BIS central bankers’ speeches  about direct costs of adopting the euro.