PRESS RELEASE
Speech by the Governor of the Bank of Albania, held in the meeting of the Interministerial Committee of the National Security Policies

The Albanian economy during 2003 seems to have regained its potential growth rates, after the slowdown noticed in 2002. Various indicators generally bring to light that the economic growth forecast for 2003, nearly 6 percent, remains still a realist possibility. Developments such as: stability in the agricultural production, the optimist performance in branches such as services, industry and transport, the increase of the trade transaction volume verified in the first half of the year, the higher number of tourists, the stabilised and favourable energetic situation, the stability in remittances as well as other factors, are arguments in supporting the reach of the economic growth objective in our country.

The year 2003 is assessed as recording another year of stability in consumption prices. As during the 3 - 4 previous years, the Bank of Albania expectations speak about an annual inflation rate target of 2 - 4 percent. According to the latest data, at the end of October 2003, the annual spread of the consumption prices marked the figure of 2.9 percent, while the annual inflation calculated as the average of the twelve last months marked just 2.27 percent, reinforcing thus its clear downward trend.

The Bank of Albania, in its recent analysis, has been pointing out that its monetary policy has gained impetus under an adequate fiscal policy, where particular emphasis has been given to the control of budget expenditures versus the realised revenues. Therefore, the demand of the government for liquidities, up to this moment, is completely fulfilled by the banking system, without necessitating the Bank of Albania financing. In these circumstances, fiscal pressures on the monetary policy are weak. Following this logic, it could be concluded that the move of both policies (the monetary and the fiscal ones) has been in harmony and in compliance with general economic-financial development program of the country.

The domestic financing of the budget deficit from the banking system during 2003 is forecasted to be nearly at the same level as in 2002, about 2.2 percent of the GDP. The steady level of the domestic government borrowing, facing the rapid increase of Lek deposits, was another factor, which gave rise to the slump of treasury bills.

The monetary policy of 2003 has continued to be careful, with easing trends. This is reflected in the reduction of the interest rates three times during this year. Attending uninterrupted the inflation performance and the indicators of banking system liquidity, the Bank of Albania reduced by 1.5 percentage point - in total - the Repo rates during 2003, bring it by the end of October to the same pre-crisis liquidity level of the previous year.

The banking system reaction was the reduction of the deposits interest rates, treasury bills and transactions in the inter-bank market. The low inflationary expectancies of banks caused the banking system reaction - in reducing the interest rate - surpass the reduction of the core interest rate in the three-month maturity term of deposits as well as treasury bills. This affected the reduction of the real interest rates during 2003. However, they have remained positive thanks to the fact of keeping the inflation rate within the target of the Bank of Albania, in the six last months. The real interest rates in positive terms have not been followed by loss of interest from households and subjects in depositing their savings in the banking system, and retaining thus the liquidity ratios in the system. Monetary developments show that the deposits haemorrhage in spring 2002, is completely past, which is also manifested by a liquidity surplus in the banking system, which has been fluctuating around the level of Lek 5.3 billion during 2003. It is worth mentioning that the surplus liquidity has influenced the reduction of the financial intermediation cost of the banking system, reflected in the reduction of treasury bills and the Lek deposits interests rates difference.

In supporting the economic growth, it seems that this year marked a further support for crediting the economy. The banks' credit portfolio in the private sector increased by Lek 9.3 billion during the first nine months of the year. During this period, a new credit of Lek 63.8 billion or 44 percent more than the same period in the previous year was extended to the economy.

According to the developments during the nine months, to the present development of the banking system liquidity, etc, it could be concluded that monetary developments during 2003 will be another contribution to the general macroeconomic equilibrium of the country.

On the other side, developments in the foreign sector of the economy indicate a further growth of the foreign trade activity where the most positive developments belong to the growth of exports and remittances. Meanwhile, according to the preliminary data, the number of tourists in the first 9 months of 2003 grew, marking thus another promising development.

The exchange rate, reflecting the developments in American and European economies interests' rates, developments in international market as well in the domestic market, Lek manifested an appreciation against the two main currencies. In these circumstances, the Bank of Albania intervened time after time in the market so as to ease the exchange supply pressures. Consequently, the foreign exchange reserves of the Bank of Albania, in absolute value, recorded the level of USD 965 million by the end of September, a level which corresponds to the Bank of Albania objective in covering 4.5 months imports.

In order to have a clearer view on the expected economic situation by the end of 2003, following there is a table with the general indicators of the country's economic development, including the monetary ones.

Table 1: General economic indicators.