Governor Sejko: Statement to the Press Conference on Monetary Policy Decision, 7 August 2019

Publication date: 07.08.2019


Dear ladies and gentlemen,

Today, on 7 August 2019, the Supervisory Council of the Bank of Albania reviewed and approved the Quarterly Monetary Policy Report.

The new information we analysed shows economic growth slowed down in the first half of the year and average inflation declined in the second quarter. The Bank of Albania expected these developments to trend in this direction, but the slowdown in the pace of growth resulted higher than our expectations.

Analysis of available information suggests that this dynamic reflects, to a large extent, supply-side shocks, whose effect is expected to be short lived. The Bank of Albania continues to expect the pace of growth to improve in the medium term. This improvement will contribute to the return of the economy to equilibrium and of inflation to target within this time horizon.

The Supervisory Council deems that the current monetary policy stance is adequate for the achievement of our objective.

However, heightened uncertainties in both the domestic and the external economic environments as well as an increase and strengthening of downside risks may require a further easing of the monetary policy stance in the future.

Let me now present the conclusions of the report and the underlying reasons for the decisions in greater detail.


Inflation showed slight downward trends in the second quarter. Its average rate stood at 1.4%, against 1.6% registered in the previous quarter. From the perspective of basket composition, the decline in inflation reflected a decline in food inflation, a phenomenon that is present also in our trading partners’ economies. From the perspective of macroeconomic factors, the decline in inflation reflected a decline in imported inflation.

On a longer-term horizon, the low and undershooting inflation reflects a persisting insufficient level of domestic inflationary pressures - dictated by the still-incomplete utilisation of production capacities - and low pressures from imported inflation, dictated, to a large extent, by the still-appreciating exchange rate.

The Bank of Albania judges that the decelerating effect of these factors will be gradually fading over the next two years.

According to INSTAT data, the Albanian economy grew by 2.2% in the first quarter. This development reflects a significant slowdown in the pace of growth, compared to both the previous quarter and the same quarter in the previous year.

Analysis of available data suggests that the slowdown is mainly attributable to a drop in electrical energy production, due to unfavourable weather conditions. This factor had a negative effect of 1.6 percentage points on economic growth in the first quarter. Although not at this intensity, the effect of this factor is expected to remain present during the rest of the year.

On the other hand, the main components of aggregate demand - consumption and private investments - continued to grow, the balance of external trade worsened, a result of the decline in electrical energy production, whereas the fiscal policy was on the consolidating side in the first quarter and on the easing side in the second quarter.

The expansion of aggregate demand continued to enable an increase in employment, a decrease in the unemployment rate, and a continuous rise of wages over past years. This trend was also present in the first quarter of the current year.

While not favoured by the tense political climate, consumption and private investments expanded in response to higher disposable income, the need to expand production capacities and favourable financing conditions.

The accommodative monetary policy has created a financial environment with low interest rates, and reduced risk premia, hence fuelling growth of credit, consumption and investments.

Interest rates on credit remained near historically low levels in the second quarter, enabling a further improvement of lending. The improvement is noted both in the acceleration of credit growth by 6.8%, and expansion of the base of this growth. Constant reduction of non-performing loans, the consolidation process in the banking sector, and the upward trend of demand have created premises for increasing lending in the future.

The exchange rate has shown slight appreciation trends over the summer months. In our judgment, this is a result of the seasonal increase in foreign currency inflows. The annual appreciation rate, however, has been on the decline and the decelerating effect that it generates on the economy and inflation is diminishing.


The Bank of Albania deems that economic growth will remain in positive territory in the medium term. The drop in electrical energy production will lead to a temporary slowdown of growth during 2019. Afterwards, favourable financing conditions and improved balance sheets of private agents are expected to lead to an expansion of domestic demand and fuller utilisation of production capacities.

Projecting these trends into the future, the Bank of Albania expects that the Albanian economy will return to equilibrium in the next year, creating premises for faster increase in wages and domestic production costs. Together with an expected stabilisation of the nominal exchange rate, they will help inflation to converge to target in the second half of 2021.

Of particular note, the Bank of Albania finds that volatility in energy production has introduced added volatility to the pace of economic growth over the last three years. They, however, has not had an impact on medium or long-term trends or production costs. Therefore, they do not affect our assessment on the cyclical position of Albania and, as such, should not be subject to monetary policy response.


Based on these projections and considerations, the Supervisory Council of the Bank of Albania deemed that the current monetary policy stance remains adequate. Taking into account these circumstances, the Supervisory Council decided to:

  • Keep the policy rate unchanged at the present level of 1.00%; and,
  • Keep the overnight deposit and overnight lending rates, unchanged at 0.1% and 1.9%, respectively.

The Supervisory Council deemed that the materialisation of forecasts in the baseline scenario would require maintaining the accommodative stance of the monetary policy in the medium term. This scenario foresees that the normalisation of the monetary policy will be rather gradual and - in any case - it will not start earlier than the second quarter of 2020.

On the other side, the Supervisory Council evidenced that added uncertainties in the economy have pushed back the momentum for the expected return of inflation to target. The Supervisory Council also evidenced that the number of downside risks has risen and their probability has increased.

These risks arise from both the external environment with the euro area economy showing continuous slowdown, and the domestic environment with political tension continuing to induce uncertainties.  Unexpected shocks to the exchange rate may shift it farther away from the equilibrium.

A worsening of our baseline scenario or materialisation of risk shocks could require a revision to the easing side of our monetary policy stance.

Lastly, the Supervisory Council iterates its appeal for continuing with structural reforms, which have been and still are the main instrument for accelerating the pace of growth and of EU integration.