The new information analysed in this Reports, has been, overall, better than the expectations of the Bank of Albania. Inflation declined in November and December 2022, the economic activity continued to grow in the second half of year, while the normalisation effect of monetary policy stance is appearing more complete in financial markets. These trends are expected to continue in the next quarters. The updating of forecasts reaffirms our expectations that inflation will return to the target within the first half of 2024. The fall in inflation will reflect the further reduced inflation across international markets and the cumulative consequences of monetary policy stance normalisation in Albania. The Supervisory Council in the meeting of 1 February 2023, when this Report was reviewed, decided to maintain the monetary policy stance unchanged. The Supervisory Council deems that the inflationary pressures remain high and the further normalisation of monetary policy stance in the future is necessary to guarantee the return of inflation to the target.

The new information analysed in this Report has resulted better than our expectations. Inflation continued setting on a downward trend in the first quarter, resulting from the overall decline of inflation in global environment, the high comparative base effect of a year earlier and from the first effects of momentary policy normalisation stance. At the same time, economic activity in Albania continued to grow at a stable pace. Our forecasts suggest inflation will continue to gradually decline in 2023 and return to its target in the first half of 2024. Economic growth in Albania is expected to remain in positive territory, underpinned by the sound balance sheets of private sector, the positive prospect in labour market, the improved confidence of economic agents and the still accommodative financing conditions. The Supervisory Council decided to maintain the monetary policy stance unchanged. Nevertheless, the domestic inflationary pressures remain elevated and meeting the price stability objective may require a further normalisation of the monetary policy stance in the future.

Inflation came down in the second quarter 2023, in reflection of the decreased external pressures, the appreciated exchange rate and the reduced inflation expectations. In parallel, the economic activity in the country has been expanding. The normalization of monetary policy the stance has had a positive role in this regard, in helping to keep domestic inflationary pressures under control and enabling the financial markets function smoothly. Based on current trends and their supporting factors, the Albanian economy is expected to continue growing in the coming years, while inflation is expected to return to the target by the middle of next year. In these circumstances, the Supervisory Council decided to keep the monetary policy stance unchanged with the approval of this Report.

The Albanian economy has exhibited a good resilience to the adverse shocks caused by the rapid upsurge in prices in global markets, originating from the war in Ukraine. Economic activity has been growing in the first half of the year, enabling an increase in employment and wages and an improvement in the financial situation of enterprises. In parallel, both public debt and the foreign debt of the Albanian economy have been reduced, the lek exchange rate against foreign currencies has appreciated, the non-performing loans ratio has remained at low levels, and the overall financial situation of the banking sector appears sound.