Monetary Policy Report Q2 - 2013

The first months of 2013 confirmed our projections for slow economic growth and weak inflationary pressures in Albania. Economic activity continues to suffer from the sluggish aggregate demand reflecting economic agents’ uncertainties about the future, relatively tight lending standards, and downturns in the economies of our major trading partners. However, despite the challenging macroeconomic environment, Albania’s economic and financial stability remains stable. In the first half of the year, inflation remained low due to weak demand-side pressures and anchored inflation expectations. The latter reflect Bank of Albania’s prudential monetary policy, which has enabled the decrease in long-term interest rates and contributed to maintaining sound banking system parameters. Below-potential economic growth will be followed by weak demand-side inflationary pressures and, in the absence of any unforeseen supply-side shocks, consumer prices will increase at low rates. Annual inflation as to four quarters ahead is expected to fluctuate around the 1.1% - 3.8% range, with a 90% probability of occurrence. Against this setting, our monetary policy will retain its stimulating nature over the quarters ahead. Also, we will continue to provide the banking system with all the liquidity needed for the smooth functioning of financial markets.