At the initial stage of the financial crisis the importance of the macro prudential policies in the overall policy mix was highlighted and therefore, a lot of attention has been put on the monetary and macro prudential policy nexus, conveying the main message that the price stability and financial stability are interconnected. With the appearance of the sovereign debt and banking crisis in the last couple of years in the euro area, it was quite obvious that the poor public finances management could also impose threats to the financial system. The financial instability and weak public finances can potentially have adverse effects on the financial markets, imposing distortions in the monetary policy transmission mechanism, and resulting in serious macroeconomic imbalances. The required policy nexus is becoming a necessary precondition for designing and implementing a sound macroeconomic management. Under situation that was more specific than usual, when the role of traditional instruments was limited, the monetary policy turned to unconventional policy measures. Although the monetary policy in the region has not been constrained by zero lower bound on interest rates, the central banks also turned towards unconventional monetary policy tools, having in mind the potential risks of repeated deterioration of the external imbalances and inflationary pressures or aiming at supporting other objectives (including credit growth).
These timely, coordinated and comprehensive set of measures, were ultimately aimed both at containing the adverse economic impact and at preserving monetary and financial stability, as a precondition for the future recovery of the economy. I believe we got the balance right. So far, Albania managed to avoid both a spike in unemployment and major business failures, despite the financial difficulties they faced. Furthermore, our financial system remains solid, with little volatility across financial markets, low lending rates, a stable exchange rate, and a liquid and well capitalized banking sector. Just as importantly, our stress-tests indicate the banking sector’s resilience to additional shocks. Under these premises, I believe the Albanian economy enjoys sufficient preconditions for a gradual recovery. However, challenges remain. For the remainder of my speech, I would like to briefly share with you our perspective on them. *** Ladies and Gentlemen, While most baseline economic projection scenarios remain positive, it’s clear the ongoing global recovery remains fragile. Policy challenges still present, both in the short and in the mid to long run. The first challenge is to ensure the sustainability of the ongoing recovery and to safeguard it against downside risks, such as potential second lockdown. At the Bank of Albania we believe the overall policy stance should remain accommodative over the foreseeable future. Any policy normalization should be coordinated and data-dependent. A coordinated normalization means an ideal sequencing of macroprudential policy stance first, followed by fiscal and monetary policy later.