PRESS RELEASE
Questions and Answers at the Governor’s Press Conference, 30.05.2014

Question - For months now, the transmission mechanism of the monetary policy has been improving, in the sense that key rate cuts are being reflected in interest rates on credit, although, perhaps, not at the extent you would like them to. All the same, they are being reflected. As you highlighted, this is not enough. Once again, you called on the banking system for the interest rate cut to be translated into quantitative increase of credit to the economy. In your view, which are the missing bits in the puzzle that would enable the monetary stimulus to be better transmitted to the real economy, and yield more benefits for businesses and households? In other words, what is missing?

Answer - If the financial world had an answer to this question, I think we would not be in the situation we are today. As I have pointed out, the "Achilles tendon" is about rendering credit to the global economy fully efficient. The attention of the policy-makers, bankers and financial world is focused on this complex element, which requires dedication by all economic and financial agents, as well as the public. The latter should understand as best as possible the messages and information from the central bank and policy-makers. It is pivotal for the public to adapt its behaviour under the current economic conditions.

Globally, the situation is expected to be more optimistic after the completion of a major programme of the European Central Bank to review banks balance sheets and establish a single supervisor. At the Bank of Albania, we are, in the meantime, doing our homework. Obviously, the situation does not depend only on the central banks or banking groups; it depends also on development and structural policies by the respective governments.

The new arrangement with the International Monetary Fund and the World Bank has been received very well. It has enhanced the credibility of the Albanian economy, making it ready to reach out in the market for renewing the credit of some years ago, through the Eurobond instrument.

Today's decision provides a fresh opportunity for the Albanian economy to ease funding costs and boost crediting in the country, while staying within inflation bounds.

With regard to the transmission mechanism, it is a rather complex issue. The part relative to the interbank market is functioning perfectly. Similarly, key rate movements have been fully transmitted to T-bill yields and interest rates on deposits. Recently, we are witnessing the same is happening, albeit not at the same extent, with interest rates on credit. Despite the global-wide difficulties facing the transmission mechanism and its pass through, I think we are on a good track. What we would like to see is the banking and financial system and economic agents at home to adapt to and take advantage of the current important changes we are making. Under these circumstances, I would conclude that the move of the Bank of Albania is strategic, in line with its forward-guiding easing policies. This move arrives at the right moment, and helps the banking sector. On its side, this sector should responsibly take advantage of this moment and follow our moves to remain within inflation targeting.