Other factors affecting inflation, such as current and expected economic performance against the potential rate of development, expansion of monetary assets in the economy, and the public’s expectations of financial markets, exert inflation-restraining impact. Our projections for the rest of the year support the maintaining of positive performance of Albanian economy. Consumption and private investments are expected to grow further, whereas following the 2010 slowdown the fiscal sector is expected to provide a positive contribution to economic growth. However, the demand growth is likely to be below our economy’s potential even for 2011. This will condition the downward inflation pressures from the domestic economy, which are expected to offset the foreign price rise effect. On the other hand, the Bank of Albania is determined to take appropriate measures to meet its inflation target in the medium term. *** The Supervisory Council judges that, based on the above overview, medium-term inflationary pressures are in check. Inflation expectations remain anchored at the Bank of Albania’s inflation target. In the absence of any unexpected shocks, inflation is expected to be within the Bank of Albania’s target over the medium term. Also, the risks around this central scenario appear to be balanced. BIS central bankers’ speeches  3  At the end of the discussions, the Supervisory Council concluded that monetary conditions appear suitable for meeting the inflation target in the medium term and decided to maintain the interest rate unchanged, at 5.25%. 4  BIS central bankers’ speeches
There has also been increasing recognition of the need for macro-prudential policy in dealing with the problem of systemic risk as well as coordination between monetary policy and financial system policy, given that such measures could likely have a macroeconomic impact. The idea is not new to us as you may recall our prior uses of loan-to-value ratios and tightening of credit card rule to prevent the build-up of vulnerabilities in the real estate and household sectors. Ladies and gentlemen, When all things considered, though regulatory weakness was partly to be blamed for the recent global financial crisis, it is not that the tenet of risk-based supervision is flawed, but rather failures occurred where there was complacency in overestimating the ability to understand and manage such risks. Therefore, I believe one of the key lessons to be drawn from this global crisis is that we must put great focus and vigilance on supervisory process, rather than just redrafting the written regulation. Finally, there is pressing call for stronger international cooperation and dialogue among supervisors. This is so because the complexity and cross-border linkages of financial systems will continue to increase and while we are still grappling with the appropriate supervisory structure to handle cross-border issues, information flows, at this time, continue to be limited. Thus, without effective communication and cooperation, it will be difficult to prevent or contain future financial crisis spillovers effectively.