Conform to institutional commitments, the Bank of Albania has regularly contributed to reporting according to respective chapters of the acquis communautaire, reflecting the progress achieved on the approximation of Albanian regulatory framework to EU legislation and attainment of European standards. With regard to Bank of Albania’s activity, the EC in its Progress Report of October for Albania, inter alia, commented positively that the monetary policy has successfully helped in keeping inflation stable and the banking sector remains well-capitalised and liquid. Implementation of the EU-funded Twinning Project of the Bank of Albania with the Bank of Italy in partnership with the Bank of France started in 2011. This project, which covers the major part of Bank of Albania’s activities, will help in enhancing institutional capacities, approximating the regulatory framework and work practices of the Bank of Albania to those of the EU and ECB, as well as promoting the development of financial market and instruments at home.   Promoting payment system  Fulfilling its legal responsibility for a smooth functioning of payment systems, in 2011, the Bank of Albania actively worked to strengthen the payment systems oversight, improve the technology infrastructure and develop new payment products in Albania. Both main payment systems, AIPS (for settling large-value payments) and AECH (for settling and clearing small-value payments) operated with full efficiency, reflecting the stability of the systems.
The sharp price increase in international markets and its rapid pass-through to domestic consumer prices in early 2011, led to key interest rate rise by 0.25 percentage points in March. Such a move aimed at anchoring inflationary expectations and preventing second-round effects on inflation, against the setting of projections for further international price increases. Over the second half of the year, upon moderation of inflationary pressures and inflation’s falling back within the target, as well as upon the shifting of expected inflationary pressures balance downward, the monetary policy became strongly stimulating. The Bank of Albania carried out two consecutive key interest rate cuts, taking the key interest rate in the economy to the lowest historical level (to 4.75%). The stimulating policy through the key interest rate was accompanied by continuous liquidity injections into the financial market. Overall, the monetary policy pursued in 2011 and the sluggish demand for public sector financing helped in controlling the risk premia, leading to lower financing costs and increased financial intermediation in the national currency. The latter was also helped by a change to the required reserve instrument, by means of which the foreign required reserve remuneration was abrogated. It aimed to discourage foreign-currency intermediation and improve the monetary policy transmission mechanism. The issue of financial euroization in Albania will continue to be on the focus of the Bank of Albania’s monetary policy in the future. 4  BIS central bankers’ speeches  ***  3.