A great deal has been written on the subject. But perhaps it will suffice to recall the Swedish experience in the 1970s and 1980s. The high and widely fluctuating rate of inflation had clear negative effects on our economy. Productivity gains and investment growth in that period were low. Sharply rising prices led to an arbitrary redistribution of income and wealth. In order to rectify the corporate sector’s competitive position, the value of our currency had to be written down on a number of occasions. Bit by bit, however, more and more people, regardless of which political party they supported, realised that this economic policy could not be sustained. So in the early 1990s, Sweden finally joined the growing number of countries that had chosen to re-focus their policy on low inflation. 1  BIS Review 98/2000  But while it is not difficult to advocate low, stable inflation, it is less easy to argue that just 2% is the appropriate rate. When the inflation target was adopted in 1992, it was noted that this was approximately the level of ambition that important countries had chosen. Moreover, inflation was currently around that level when the decision was made. Alan Greenspan has argued that inflation should be so low that people generally do not give it a thought when making economic decisions. That points to 2% as a reasonable level. There are some objections, however. Some argue that an inflation target ought to be higher. One reason has to do with the downward rigidity of nominal wages.
Fiscal revenues increased 9.0% in annual terms, while budget expenditures were 7.5% lower than the previous year. Our monetary policy easing has also taken into account this feature of fiscal policy that the Bank of Albania has urged and supported. However, the Bank of Albania would like to bring to attention the need for a more uniform distribution of expenditures and budget deficit over the year, to enhance their effectiveness and avoid the fluctuations that their excessive concentration may cause to the country’s economic and financial indicators. BIS central bankers’ speeches  1  The improved foreign demand and positive dynamic of some sectors of the economy were reflected in an increase in annual exports by 10.3% in April. The detailed analysis of trade data reveals encouraging signals about re-exporting and agricultural activities. Trade deficit, however, expanded 1.8% in April, due to the simultaneous increase of imports by 6.0%. In particular, the energy situation continues to burden the trade balance of the country due to high levels of energy imports. Structural improvements to the economy and a more favourable external environment would pave the way for a faster growth of Albanian exports. The Bank of Albania considers this channel as the most appropriate tool to support the country’s sustainable growth in the medium and long term. Projections for low annual inflation rates, against the backdrop of below-potential economic growth, have dictated the pursuit of an easing monetary policy by the Bank of Albania.