Overall, controlling the borrowing in the domestic money market, expanding the Government securities investment base and stabilising the risk premia in the economy create grounds for a better functioning of transmission channels in the future. Therefore, the Bank of Albania believes that the longterm public debt sustainability and public borrowing constraint in the domestic money market help enhance the monetary policy effectiveness and increase the space for the private sector credit of the economy. Monetary indicators were characterised by slowing growth rates in the second half of the year. They signal low monetary inflation pressures on the economy. The annual monetary supply growth averaged 5.9% in October and November, supported primarily by developments in the external sector of the economy. Money demand by the domestic agents of the economy was low. The increase in households’ participation in public debt securities was reflected in lower financing of this sector by the banking system. Businesses’ and households’ demand for funding decelerated significantly, reflecting the low demand for consumption and investments. Also, banks continued to pursue a more prudential approach in lending, applying tight standards in response to uncertainties perceived at sector level and the economy. Responding to them, annual growth of credit to economy reached 4% in November. Credit to economy was based on the 18% increase in ALL-denominated loans, against the 3.2% decline in foreign currency-denominated loans. Also, credit growth continued to be driven by increase in business loans, while consumer loans and home loans appeared rather low.
Public expenditure increased by 0.9%, y-o-y, mostly reflecting the negative growth rates of capital spending. As a result, the budget deficit of this period marked 8% annual decline. The fourth quarter highlighted a better pass-through of monetary stimulus in financial markets. It was also characterised by a better anchoring of interbank market rates and their decreasing volatility. The Bank of Albania has pursued an easing monetary policy during the last three years. The monetary stimulus has increased progressively during this period, bringing the key interest rate to record low levels and mitigating the liquidity pressures on the interbank market. However, the pass-through of easing monetary policy effects on the economy has been contained due to higher perceived risk premia and changed stance by financial market agents and the real economy. Over the first half of the year, the domestic primary market faced structural changes arising from implementation of new tight measures by the European Supervisory Authorities. This development impacted on maintaining relatively high yield rates, despite the easing monetary policy and lowering short-term interest rates in the money market. Normalisation of the primary market in the second half of the year was reflected in progressively falling yields over this period. This tendency might have been passed on to ALL-denominated private sector credit costs, though with lower intensity as a consequence of risk premia reflected in private agents’ credit price.