Financial Stability Report - 2016 H1

During 2016 H1, economic developments in Albania were positive. Inflationary pressures remained weak and the Bank of Albania deepened the easing monetary policy stance by lowering the policy rate two times by 0.25 percentage point to 1.25%. Fiscal policy maintained its consolidation trend through the increase in revenues and the decrease in budget expenditures. In the domestic financial market, interest rates on lek financial products, declined during the period, due to monetary and fiscal policy actions. The foreign exchange market reflected developments in international markets, and lek appreciated slightly against major currencies. During the period, the banking sector and financial system activity expanded even further, but the growth pace slowed down. The activity was funded again through deposits, which make up 82.3% of the banking sector's assets, and showed steady value during the period. The Bank of Albania considers that banks capitalization and profitability is sufficient to cope with activity risks. International economic and financial developments have been in line with expectations. Incentive policies, particularly in the developed countries, have supported the moderate growth of the world economy. Prices of raw materials and oil, have stabilized near low levels and the consolidation of the signals for their recovery is needed. Generally the inflationary pressures remained weak, despite a relative improvement in the labour market for more developed economies. Foreign exchange markets were generally stable, despite the volatility at the end of the period following the unexpected result from the referendum held in UK for its withdrawal from the European Union ("Brexit").