It will also be necessary to impose tight restrictions on foreign-denominated lending to households and businesses without corresponding foreign currency-linked income. But these restrictions are prudential rules rather than capital controls. The Central Bank sent the Minister of Economic  BIS central bankers’ speeches  5  Affairs a report on this topic at the end of 2010 and intends to send him a more in-depth report on the same subject shortly after Easter. Looking ahead to the next several years, the question is not whether we lift the controls, but how. This is not the time or place to go into that topic in detail, as it has been discussed recently in some depth by the Bank and its representatives, and that discussion will presumably continue. The main point is that carefully preparing the liberalisation process, as is currently being done, significantly reduces the risk to financial and economic stability. Progress has been made in this area, and a great deal more can be done in the near future. There is quite a bit at stake: the short-term benefits conferred by the capital controls could be lost at the eleventh hour and several years of long-term benefits of free capital movements could be burned up if liberalisation is carried out recklessly.
Moreover, the space for fiscal stimulus has narrowed, as a result of the orientation of the fiscal policy towards maintaining fiscal parameters stability. Under these circumstances, Albania’s economic growth will be determined mainly by the performance of consumption and private investment. The latter is expected to be driven by eased domestic lending terms during 2012, but will suffer, at the same time, from the uncertainty and hesitation of consumers and private businesses. The Bank of Albania deems that the second half of 2011 marked a turning point towards a more normal consumer behaviour, which should be encouraged and supported in 2012. *** Taking into consideration the information set out above, the Supervisory Council holds that pressures on consumer prices at home remain low over the monetary policy relevant horizon and they have shifted on the down side over the past months. On the demand side, below-potential economic growth will continue to generate low inflationary pressures as shocks from the supply side are expected to be moderate. At the conclusion of discussions, the Supervisory Council decided to cut the key interest rate by 0.25 percentage points bringing it down to 4.25%. This decision aims to provide the appropriate monetary conditions to meet the medium-term inflation target. In addition, the easing of monetary policy provides higher support for the development of the private sector’s demand in our economy. 2  BIS central bankers’ speeches