Monetary policy instruments

The monetary policy of the Bank of Albania entered a new interesting phase at the end of year 2000, when it was decided to discontinue the use of direct instruments of monetary control.  For a relatively long time of about 8 years, the implementation of monetary policy was conducted through two main instruments, which in itself consisted of two administrative decisions of the Bank of Albania. These decisions consisted in: (1) limiting the excessive growth of outstanding credit of commercial banks; and (2) setting an obligation for the state owned banks (or the banks in which the state had a share of capital) to respect the minimum level of interest rates announced by the Bank of Albania for time deposits in Lek

In 2000 Q3, banks were not responding to the continuous decrease in the administrative rate set by Bank of Albania These developments urged a redesign of the entire operational framework. It was decided that the monetary policy of the Bank of Albania would be implemented through the use of the market instruments. More specifically, it was decided to set as a benchmark policy rate, the interest rate of the repurchase (reverse) agreements with one week maturity. These transactions were to be conducted through regular weekly auctions.

Following, is a description of instruments used by the Bank of Albania to implement its monetary policy. 

Open market operations are exclusively decided by Bank of Albania, which determines the type of instrument that will be used as well as the relevant terms and conditions of their execution. According to the purpose of their use, open market operations are divided into: main market operations, fine-tuning operations and structural operations. Repurchase and reverse repurchase agreements are used as the main open market operation and as fine-tuning operations, based on the instruments’ lifetime. Outright sale or purchases of the securities are instruments used in structural operations.

Read more

Standing facilities are instruments available to banks at their own initiative without restriction under normal circumstances. They consist of instruments providing and absorbing overnight liquidity. The interest rates on these instruments provide the corridor in which the money market interest rates can fluctuate.
Read more

The minimum reserve requirements serve as an instrument aiming at adjusting the banking system liquidity and stabilizing the money market interest rates.
Read more

Monetary policy implementation consists of: (1) adequately sizing the banking system liquidity deficit to ensure the effectiveness of the monetary policy transmission; (2) forecasting the liquidity needs of the banking system arising from the development of the autonomous liquidity factors, over the forecasting horizon; and (3) executing the open market operations.
Read more

 

To visit the old version of the website, click here