PRESS RELEASE
Questions and answers at the press conference, 23 March 2022

Question: In case the situation of prices continues to be a problem again due to the conflict that yet it is unknown how long will take, does the Bank of Albania has any alternative to intervene or take measures to safeguard the price stability in Albania, in addition to the increase of interest rate?

Governor: The main objective of the Bank of Albania mandated by the Law is to maintain price stability and the key interest rate is the main instrument that the Bank of Albania employees for this purpose. The key interest rate is applied on the national currency, and in this regard, there should be emphasised that the transmission of monetary policy is gradual, not an immediate one. It is reflected on price level after two to three months, or even longer.

Naturally, the Bank of Albania, in addition to this main instrument, has also other instruments. These elements consist in micro and macro prudential measures that are applied for the purposes of financial stability, on both financial system and banking system. Also, measures related to liquidity situation, the supply with liquidity to the market pursuant to definite financial situations.

These are crisis situations, specific ones in terms of their features. Indeed, we overcame a difficult crisis, the pandemic period. That crisis needed an eased monetary policy, that is, the cut of interest rate to the minimum historical level.

Nowadays, the situation has changed. We are in a crisis situation originating from the military conflict in Ukraine and we are facing the contrary - the upsurge in prices - and this situation needs a different monetary policy stance.  Currently, most central banks in euro area, and also worldwide: the Federal Reserve and other central banks, are maintaining this monetary policy stance.

The Bank of Albania will continue to work in terms of price stability objective. I would like to emphasise, that notwithstanding the limits and restrictions we have had from the high euroization level in the Albanian economy, the pass-through of the Bank of Albania’s monetary policy was good. It was quite good, though the limited level, as consumption, investments, economy and lending in domestic currency have grown.

Question: Was there any intervention from the Bank when there were fluctuations of the exchange rate at the beginning of this month, with euro exchanged up to ALL 128 in certain exchange bureaus?

Governor: At this moment, the exchange rate shows the same behaviour as at the beginning of the crisis.  If you remember, two years ago, at the outbreak of the shock from the pandemic crisis, the national currency depreciated and the Bank of Albania intervened at that moment.  The same has happened also this time.  We noted the exchange rate depreciating for some days in a raw. 

I would like to point out that the Bank of Albania operates under a free-floating exchange rate regime, and there is no a definite objective of the exchange rate.  In the framework of operating under a free-floating exchange rate regime, we intervene only in specific cases, which are clearly defined in the relevant regulations. 

These case are: if the exchange rate manifests a strange behaviour,  is a speculative one; when spreads are opened; in more concrete terms, we were found in this situation when the exchange rate had a strange behaviour with rather broad spreads due to the shock from physiological factor and the high expectation of economic agents for an increase in import prices of energy, oil and of all other products, though this did not represent a real situation of the demand and supply for foreign currency in the market. 

Then, the Bank of Albania intervened for two and three days, and the exchange rate was stabilised.  The fact that the exchange rate stabilised after the intervention of the Bank certified that the exchange rate behaviour was a consequence of the psychological effects, not of the demand and supply factor.  

Nevertheless, there should be stressed that the Bank of Albania intervenes only in specific cases occurring in the exchange rate. In case the exchange rate will be either depreciated or appreciated due to the new economic reality, the Bank of Albania will not intervene. As I already said, interventions in the exchange rate are specified; they are taken in very specific cases, whether there is a shock on inflation, financial stability, to increase foreign reserve, or whenever there is a strange behaviour driven by physiological factors.

In these days we see that the exchange rate continuous to remain stable. We will monitor how the economy will react, how the markets will be, how long the conflict will take, as well as the level of conflict shock from international markets on the Albanian economy. 

The today decision-making of the Bank of Albania, or overall, of central banks, to raise the interest rate is correlatively related to the exchange rate level.  The non-reaction of central banks through the key interest rate would impact on the deprecation of the exchange rate.