Developments in other countries are just as important for the krone as developments in the Norwegian economy. Capital flows freely and flows can change rapidly. This can spill over to exchange rates and interest rates as well as output and employment. There is a cost involved for businesses in hedging against fluctuations in the krone. A krone that is stable - but too strong - also entails social costs in the form of low activity. Likewise, a krone that is stable - but too weak - is a source of high inflation. Norway is running a current account surplus as a result of sizeable oil and gas exports. Owing to high oil prices, the current account surplus is rising this year. An increase in the current account surplus will normally result in higher net demand for the domestic currency. In Norway, however, the additional foreign exchange revenues that accrue to the Norwegian state as a result of high oil prices will be invested in foreign securities through the Government Petroleum Fund. As a result, they will not have a direct impact on the balance in the Norwegian foreign exchange market. Oil companies hold a large share of their financial capital in foreign currency, and higher revenues in these companies therefore results in an increase in capital outflows. The effects of changes in the current account on net demand for the Norwegian krone can be illustrated by adjusting the basic balance for transfers to the Petroleum Fund and oil companies’ estimated cash surplus.
Financial markets in the first quarter of 2012 were serene, reflecting relatively low premiums of liquidity and inflation risks. The interest rate in the interbank money market has followed swiftly the recent key interest cuts. The transmission of eased monetary policy signals is also observable in the deposits market, while it is expected to be transmitted in the future also in other market segments, conform to the time lag of the transmission mechanism. In the primary market, government security yields showed upward trend reflecting developments in relevant structural factors of the demand and supply, without signalling added risk or inflation premiums. Verified developments insofar, change the basic projections for economic developments in the future. Year 2012 is expected to be influenced by unfavourable developments in the global economy, which may affect the Albanian economy as well. Foreign demand is expected to provide lower contribution over the course of the year, impacted by economic slowdown in our trade partners. Fiscal policy orientation towards further consolidation of fiscal parameters limits the space for a substantial fiscal stimulus to foster the economic activity. Under these circumstances, private domestic demand remains determinant for aggregate demand increase in the future. Overall, analyses suggest a better performance of private consumption and spending, helped also by the eased monetary policy stimulus. Estimates of the Bank of Albania suggest that, in the course of the year, demand growth below the potential of the economy will continue to exercise low inflationary pressures from the demand side.