Questions and answers to the press conference on 21 December 2022

Publication date: 22.12.2022


Question: At the moment, the inflation may not have reached its peak, since we are at the end of the year, and history has shown that inflation rate may increase even more, a trend that could potentially be accompanied by an increase in the policy rate for the lek. Earlier you said that there were 5 separate increases which brought the policy rate for the lek at 2.75%. Are the conditions ripe for, in addition to movements in the monetary policy stance - certainly the only tool of the Bank of Albania - to have other movements in the stance of fiscal policy? I do not know if there is any initiative between the Bank of Albania and institutions such as the Ministry of Finance or other institutions in line....

Governor: Fiscal policy is an attribute of the government, while monetary policy is an attribute and legal obligation of the Bank of Albania. As I pointed out in the press statement, we have implemented a change in the monetary policy stance, as have all central banks around the world, due to high inflation. Expectations for high inflation have been present since last year, i.e. since 2021, before the start of the war of Russia in Ukraine. There have been signals, and we emphasized this fact at the meeting of the Supervisory Council at that period when we were preparing to react with a change in the stance of the monetary policy. But the outbreak of the war in Ukraine fuelled up inflation, therefore it accelerated the decision-making, as well as the speed of interest rate increase by central banks.

It is emphasized that the speed of monetary policy normalization is "data driven", i.e. based on new inflation and economic growth data. Central banks have attempted to curb the increase in inflation, since their main objective is to safeguard price stability. This decision-making and this main instrument of the central bank has been used, while looking closely at the impact it has on curtailing the economic activity.

In last month, the inflation rate decreased in both the euro area and in Albania, and this fact drove us to take the decision to keep the policy rate unchanged, after several consecutive increases. As we pointed out, monetary policy decision-making will be based on new data and normalization will be aligned with the advancement of inflation and the progress of economic growth.

Regarding the fiscal policy, the central bank has reported its opinion regarding the need for fiscal consolidation to the Parliament. The Ministry of Finance itself has admitted that we must have a consolidation of the fiscal policy, that is, a reduction in debt level, and of course we are headed toward this reduction. The debt level has decreased and there is a concrete target for it, which has been communicated by the Government and the Ministry of Finance.

Of course, we have also asked for the reduction of the debt level, but within this fiscal management, all elements must be taken into account in order to deal with the shocks of inflation, while not hindering the economic growth on the one hand, and on the other hand to help the society in difficulty with packages or other measures such as salary increases, pensions or assistance packages, all of which the government has communicated. So, the harmonization of monetary policy with fiscal policy has always been there, at all times, during all crises.

We used to have an accommodative monetary policy, and on the other hand the government had a consolidating fiscal policy to reduce the level of debt. Today that we have changed the stance of inflation, and we are no longer in a disinflationary situation but, on the contrary, in an inflationary one, we have also changed the monetary policy stance, but it still remains accommodative. It remains as such given that in the Albanian reality, our policy has not yet reached coercive levels and interest rates have not risen above 4 or 5% de facto. In the meantime, the policies will have to remain accommodative, taking into account the elements that I previously mentioned: to the help of the society in difficulty, (in need), and to maintain the country's economic growth. This is more or less the harmonization of the fiscal-monetary policy and the strategies that we have as such institutions, the Bank of Albania and the Ministry of Finance and Economy.