The  BIS Review 84/2005  3  average inflation rate over the ten years since the inflation target was introduced does not indicate any systematic deviation. The second factor that complicates the picture of a simple relationship between monetary policy and employment is that inflation is not influenced by the output gap only but also by inflation expectations, which in turn depend on the credibility of monetary policy. If there is confidence in the Riksbank’s monetary policy it is often enough to make small changes in interest rates to signal that the Riksbank is keeping a close eye on inflation tendencies. If inflation expectations instead deviate sharply from the Riksbank’s target, more potent measures may be required. Thirdly, inflation and employment are not always affected by the same factors. Many short-term factors have a strong impact on inflation but only a marginal effect on the output gap and employment (e.g. the impact of mad cow disease on meat prices or the rapid rise and fall of electricity prices due to how the weather had affected reservoir levels). Likewise, certain factors and policy decisions affect registered open unemployment more than they influence the output gap (e.g. the National Labour Market Board’s decision to scale back labour market policy measures in 2003). In addition, the relationship between monetary policy and unemployment sometimes deviates fairly sharply from previous historical patterns.
Banks should establish sustainable long-term relationship with the businesses to enhance consultancy and lending, especially with regard to the small and mediumsized enterprises. 6  BIS central bankers’ speeches  Conclusions In conclusion, I would like to highlight that the current economic and financial situation in Albania requires maintaining the financial intermediation rates and addressing non-performing loans with priority. Collaboration with other public authorities has been successful; also, concrete action is expected to be taken on settling outstanding payments to private companies, and approving the proposed legal amendments on collateral execution. Today, the Bank of Albania proposed some additional measures aimed at inducing banks to lend more. These measures, which will be soon reflected in the regulatory framework, have a countercyclical nature and are in general temporary. This element, and the needed control mechanisms that accompany such measures, will encourage banks to respect the obligation to credit prudentially and soundly. Given that, at present, crediting has additional risks, the banks management and shareholders should ensure that these short and medium-term risks are covered by adequate capital. The outcome of these measures would improve if businesses understood and used them properly. To this end, the relationship between businesses and banks should be base only on transparent and professional collaboration. This should be better reflected in the media and transferred to the public. The Bank of Albania will assess the impact of these measures and monitor their implementation on regular basis.