On the demand side, the below-potential growth of the Albanian economy continued to keep spare capacities in output factors – labour and capital – materialising in downward pressures on wages, output costs and inflation. Economic agents’ expectations remain anchored around the Bank of Albania’s target, owing to its reliable monetary policy, as well. Anchored  BIS central bankers’ speeches  1  expectations in the economy have reduced the so-called second-round effects, in other words, transmission of temporary shocks from higher primary commodity prices in global markets and output costs and higher consumer prices at home. They have provided higher flexibility for the Bank of Albania to pursue its stimulating monetary policy. Overall, these tendencies are expected to continue in the period ahead. Reduction of inflationary pressures in 2011 and expectations for low inflation rates during 2012, motivated further easing of the monetary policy in the fourth quarter of 2011. The Bank of Albania cut the key interest rate twice, namely in September and November, down to the historic low 4.75%. The Bank of Albania holds that the monetary stimulus increase will provide suitable financial conditions for compliance with its medium-term inflation target. Furthermore, eased monetary conditions serve to boost domestic demand, which remains fragile in the presence of higher uncertainties in the economy. In addition, it factorizes prudent fiscal policy for 2012 and expected curbing of public spending contribution to economic growth.
Ardian Fullani: Recent economic and monetary developments in Albania Speech by Mr Ardian Fullani, Governor of the Bank of Albania, at the press conference on the Monetary Policy Decision of the Bank of Albania Supervisory Council, Tirana, 25 January 2012. *  *  *  Today, on 25 January 2012, the Supervisory Council of the Bank of Albania reviewed and approved the quarterly Monetary Policy Report. Based on the analysis of Albania’s latest economic and monetary developments and following discussions on their performance outlook, the Supervisory Council of the Bank of Albania decided to cut the key interest rate by 0.25 percentage points. Following this decision, the rate for One Week Repurchase Agreement fell to 4.50%. The key rate is reduced under the conditions of contained inflationary pressures over the monetary policy horizon as well as expectations for a more prudent fiscal policy in the period ahead. The Supervisory Council deemed that this decision provides the appropriate monetary conditions to meet the inflation target over the medium run. Moreover, this movement increases the monetary stimulus and encourages the economic activity in Albania. (Let me now proceed with an overview of economic developments and main issues discussed at today’s meeting.) *** The Albanian economy faced challenges in 2011 as regards economic growth and maintaining of macroeconomic balances. Additional attention to public finance stability in euro-area countries is reflected in added risk premiums in international financial markets and reduced willingness to invest in emerging economies.