PRESS RELEASE
Q&A during the press conference on monetary policy decision-making of the Supervisory Council of the Bank of Albania, February 24, 2010

Question - In the first part of your speech you emphasized the downward tendency of the Albanian economy, verified by the performance of several factors, particularly the slowdown of consumer demand. Given that the space for fiscal stimulus is small, as you also mentioned, do you believe that there is room for a more aggressive monetary policy in the coming weeks?

The Governor: Referring once again to the last sentence, I would like to emphasize that the shifting of inflationary risks balance towards the downward trend and the consolidation of the financial stability and of inflationary expectations will constitute the core of our judgment for the future. However, the essence of this discussion is that the best stimulus that the Bank of Albania gives to the Albanian economy is the long-term sustainability of macroeconomic and fiscal indicators, and the ensuring of the country's financial stability. I highlight this as the best stimulus that the Bank of Albania gives to the Albanian economy.

Question: Mr. Governor, Greece is facing severe problems, whether fiscal, financial or economic ones. How much vulnerable is the Albanian economy to that crisis and particularly what risk is posed to Greek banks that operate in Albania?

The Governor: This is a topic widely discussed in the Albanian media. As I mentioned even earlier, the fragile situation of this economy is being attended and looked into with great interest by the Bank of Albania, drawing also relevant conclusions. I think that the three-year fiscal plan to curb its budget deficit to 3%, favouring the ambitious correction of the Greek economy is very good news and at the same time a strong sign of confidence in the euro-zone economies and beyond. Such fiscal contraction would affect and provide consequences on the development of the Greek economy in the medium run, and as a result the Albanian economy would also be affected, as I have also pointed out in my other public presentations. The impact on foreign trade, on remittance, maybe on the cost of Greek banks' credit lines would be the possible effects. However, it is important that the Financial Stability Report of the Bank of Greece for the second half of 2009 provides and ensures long-term health of the Greek banking system, in spite of the deteriorating macroeconomic situation.

It's very important to understand that the Greek financial crisis is a budget crisis; it has not come as a bolt from the blue. The crisis is influenced by the global macro-financial environment and as a euro-zone economy the solution of this problem is on the focus of all EU member states. The situation is optimistic and it will be sorted out in a short period of time. As I emphasized even earlier, of importance is the credibility that the Greek government has given for fiscal contraction and achievement of parameters in the three coming years; the guarantee that the Greek central bank gives to the Greek banking system; and at the same time the expectations of the global financial environment for solution and European commitment to resolve the Greek crisis. Of its analysis and empirical studies, the Bank of Albania has assessed that its impact on the Albanian economy would not be significant, envisaging the above-mentioned effects.

The Bank of Albania guarantees the Albanian public that the subsidiaries of Greek banks operating in Albania are Albanian entities and as such they are supervised by the Bank of Albania. As we have mentioned even earlier, we confirm that these banks fully guarantee their good performance in the Albanian banking system and their effectiveness in terms of capital, liquidity and products in the Albanian banking market. At the same time, we emphasize that the increase of deposits in the Albanian banking system during two or three latest months, mainly in time deposits, includes these banks as well. All prudential indicators of the Bank of Albania show a positive progress of these banks, guaranteeing their economic activity in Albania.

I would like to add something about the Greek crisis. I would say that every bad thing has its good side as well. We must draw lessons from the Greek crisis as concerns evidence and statistics and especially the great importance of their consolidation.


Question: Given its upward trend, what measures will be taken by the Bank of Albania to keep inflation on track?

The Governor: We said that the short-term trend is upward, but the medium-term indicators show a controlled inflation rate.

Question: The government has decided to reduce investments in 2010. Will it affect the economic growth, given that during 2009 a positive economic growth was recorded mainly due to investments? Do you think that this contraction of investments would be offset by lending of second tier banks, taking into consideration that according to a report of the Bank of Albania banks are pessimistic in terms of lending. Hence, will there be a positive economic growth for 2010?

The Governor: The Bank of Albania guarantees the stability of Albanian banks and the normal development of the country's economic and financial activity, including lending. Also, referring to what we have confirmed in other conferences, we are moving towards new equilibriums, implying that deposit flow into the system will be a very good premise for increasing credit to the economy. Improvement of the global macroeconomic environment, better assessment of banks on the demand and supply side, as well as better business diversification and monitoring would affect the credit growth and the country's economic development. This requires better bank-customer cooperation and more efforts by banks for a better assessment of profit-making activities.

Question: According to Bank of Albania's judgement, will 2010 be a more difficult or a better year than 2009? Why aren't banks fully transmitting the easing of monetary policy?

The Governor: The conclusion of today's discussion, I think, is that the Bank of Albania is optimistic. Naturally, it is not easy to predict the future. The Bank of Albania does not have the crystal ball to make predictions about everything and does not possess all the means to make the impossible possible. The Bank of Albania has its principal objective, that is the price stability, and therefore it has made tremendous efforts starting from 2006, especially during 2008-2009 for a long-term macroeconomic and financial stability in the country.

In terms of credit to the economy, it is very important to understand that the situation is more promising, especially upon the flow of deposits into the system. The Bank of Albania is seeking from the banking system a better bank-customer cooperation to find any objective space, so that the lending is always an effective stimulus to the economy. Of course, we should not forget that the banking system has all the legal spaces to make this cooperation more effective.