BANK OF ALBANIA

PRESS RELEASE
Governor Sejko attends the Scientific Conference on: “Pandemic and recovery – the coping strategies and expectations”

Publication date: 09.02.2021

 

On 9 February 2021, the Governor of the Bank of Albania, Gent Sejko, attended the Scientific Conference on “Pandemic and recovery – the coping strategies and expectations”, organised by the Assembly and the Academy of Sciences of Albania.

 

In his speech, Governor Sejko stated that the Covid-19 pandemic caused an unprecedented negative shock, which required an out-of-the-ordinary response from the monetary and financial authorities around the globe. Faced with this blow, central banks have stepped out of the traditional frames, by adopting an expansionary monetary policy based on the expansion of central bank’s balance sheet.

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The Governor emphasised that similar to the 2008 global financial crises – when central banks injected extraordinary amount of liquidity to the economy, by purchasing every category of debt and mortgage-backed securities in the market – one year following the outbreak of Covid-19, central banks, whether explicitly or implicitly, view the monetary expansion through the lens of balance sheet expansion, as a permanent instrument of the monetary policy.

 

Mr Sejko highlighted that it is natural for economists to face a dilemma on whether these unconventional practices are appropriate even for small and opened economies, with a large scale of euroisation and weak currencies, by bringing as an example the economic situation of Albania during the pandemic.

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In his discussion, Governor Sejko said that the Bank of Albania deems that the pandemic has caused a considerable blow on the economic activity, employment and investments, putting enterprises and households under great strain to fulfil financial needs and obligations. In response to these shocks, the Bank of Albania has undertaken a set of measures of monetary character through easing the monetary conditions, by reducing the interest rate and injecting unlimited liquidity to the economy. 

At the same time, a set of macroprudential measures were undertaken to ensure that short-term financial problems of enterprises and households do not harm the stability of the banking system and do not obstruct its intermediary activity and role in the economy.

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In comparison with central banks of advanced countries, the Bank of Albania has not applied unconventional monetary policy measures in order to expand its balance sheet, since the monetary policy has had the adequate space for the monetary expansion through the cut of the interest rate in its own conventional form; the structure of capital market in Albania is quite limited and debt and mortgage-backed securities of the private sector are almost non-existent.

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As a concluding remark, the Governor pointed out that the new concepts on the nature and instruments of the monetary policy sidestep certain core principles of sustainability of the intermediate balance sheets of the government, central bank and the overall economy. These principles expressed in the form of quantitative limitations are crucial to the stable policies for small and opened economies that are developing. The implementation of such practices that goes unstudied may be dangerous to these economies.

 

Governor Sejko highlighted that the success and necessity of the proposed changes, to achieve the monetary policy objectives, is still to be proved in the future by the actual results of central banks, which have also applied the empirical and academic studies.