PRESS RELEASE
Questions and answers at the press conference, 23 March 2023

Question: Mr Governor, as it was declared, it seems that the necessary increase of the policy rate it is already carried out. In this manner, you have referred always as a normalisation of the key interest rate. In the coming months, inflation will remain in this anaemic decline, let say 7.2 to 7.1, meaning that it is not expected to decrease. Do you think you will move to a tightening territory of monetary policy?

Governor: First, it is early to speak about an accommodation of monetary policy, that is, to think for a cut of the interest rate. Despite the decrease in the headline inflation, we decided to raise the policy rate in the today's meeting of the Supervisory Council based on the increase of core inflation, build-up of the domestic inflationary pressures, by emphasising that prices in Albania have edged up. Notwithstanding the oil price, the other food and commodity prices of the basket have showed a persistent increase by triggering a reaction of the monetary policy. The aggregate demand has grown, thus the Bank of Albania deemed that the normalisation of monetary policy should continue.

On the other side, we have always been attentive in safeguarding the equilibrium between the impact of the policy rate on curbing the increase in prices, and the impact on the economic growth to not constrain it. In addition, another reason is related to the latest situation of banks facing problems in the USA and the Europe. That is, to be prudential regarding the financial stability of Albania and to affect as little as possible the soundness of banks.

The today’s decision is assessed to not impact these factors. In practice, we are still in accommodative territory of monetary policy. The interest rates have not been increased at those levels which restrain the economic growth. In addition, as I already emphasised in the Supervisory Council’ statement, we will remain attentive to consider all these elements regarding the next movements. The speed of monetary policy normalisation will be always related to: the economic growth indicators; the financial system's soundness in Albania; and all the macroeconomic parameters. In case inflation declines, the monetary policy’s reaction maybe slower. We will see and make assessments because the decision is based on data. I cannot communicate, despite the projections conducted - what will be the decision. But, one thing is sure: the decision will be as fast as it was thought in the previous year.

Expectations on the increase of inflation in Albania, in the region and worldwide were higher than they were in real.  Prices in the euro area have been decreasing and the monetary policy normalisation of central banks has reduced the speed, notwithstanding the latest movement of the monetary policy of the Federal Reserve, the European central Bank and the Bank of England. We may have an increase of the key interest rates, but not at the projected speed.

We are in a situation where the interest rates remain at these levels. They may not be increased at the projected speed, while the latter depends on figures. It is still early to speak for a cut of interest rates. Absolutely, if macro-economic parameters will improve, then we will react with the monetary policy. If we achieve our 3% inflation target by the middle of the next year, I think that everything is positive. We expect a successful tourism season, economy is growing, the macroeconomic situation is performing in a positive territory, the financial system is stable, and the financial markets are calm.

Question: Related to the latest developments in the USA, where markets have been shocked following the bankruptcy of two banks. Also, in the Europe the case of Credit Suisse is triggering a lot of difficulties.  While there is a panic across markets, investors have driven the stocks of many companies and banks to fall in quoted stock exchanges. To what extent is the banking system in Albania exposed to these events according to your opinion.

Governor:  The bankruptcy of Silicon Valley Bank in America and of Signature Bank is an alert for all international financial markets.  The reaction of the European market through Credit Suisse and the developments that you have seen, arose the vigilance and we have subsequently analysed the situation of the financial system. These financial event occur due to the failure in implementing the risk criteria in these banks, failure in safeguarding the concentration level of risk, and failure in analysing both liquidity risks and maturity gaps.

These banks have not analysed the maturity mismatch, and in practice, the change in interest rates had its impact by causing losses. This situation led to panic and large withdrawals of deposits from the bank in a short term-time frame driving to the situation that we already know. The intervention by regulators and the respective government at large amounts has contained and stabilised the markets. Nevertheless, our financial system is neither affected from nor exposed to these financial markets. Not only to the American banks also to Credit Suisse. The exposure is almost negligible, below 0.8%.

On the other hand, the consequences triggered by the 2008 crises, the debt crises in the euro are, and the Greek crises, have led us to take  prudent and regulatory supervisory measures, in order banks be well-capitalised and with a high liquidity level. The above-stated phenomena, and the performed analyse, show that banks are in a sound financial position, and have no problems of this type. The liquidity indicator is at high levels, and the regulatory requirements we have are very far away of this crisis.

Of course, financial system crises have a chain effect. We are closely monitoring the international markets. But, the truth is that the Albanian market is far away of these risks. In addition, results from stress tests and analyses conducted by the Bank of Albania though its relevant departments show that commercial banks are quite sound.  Even under an assumed scenario, if there were very strong shocks from abroad, banks still are well-capitalised and very sound. Thus, in this moment, we have no problems in our banking system. Of course, it is a good moment to be vigilant and consider to be always prudent in supervising the risk criteria, as even in these advanced countries if the risk criteria and regulatory supervision requirements are not observed properly then unpleasant events occur.