Crisis / Governor of the Bank of Albania: Our main objective is financial and price stability

“As a regulator and supervisor of the banking system and non-banking institutions (which account for about 95% of financial assets in the market), the Bank of Albania has an implicit duty to maintain financial stability at all times.”

Referring to the latest developments in the Albanian economy and the effects of the crises of recent years, Governor Sejko said that price stability has been and should remain the fairest objective of monetary policy. Also, an inflation targeting regime provides the most effective and efficient framework for monetary policy making, while the framework of monetary policy instruments itself needs to be constantly evaluated and updated.

The governor added that the current global crisis, created by the pandemic, the Russia-Ukraine conflict and the price crisis, faced central banks with a number of challenges that needed to be addressed and responded to in a timely manner.

He said that the task of central banks to maintain the monetary and financial stability of economies becomes more complex, in the presence of continuous, strong and prolonged shocks, as well as the constraints that fiscal policy has as a consequence of the relatively high level of high public debt.

The monetary policy regime applied by the Bank of Albania, that of flexible inflation targeting, provides the right discretion in decision-making, as long as it takes into account both the final objective of price stability and the need to mitigate the consequences of the shock to the economy.

Also, Governor Sejko stressed that alternative monetary policy regimes, such as. Targeting prices or exchange rates does not apply in the case of Albania, due to the fact that the costs they may incur in the form of reduced credibility and efficiency are significant.

Maintaining financial stability is complex and requires the active involvement of other institutional actors. Therefore, there is a need for continuous coordination and cooperation with other institutions involved in this process. In parallel, the Governor stressed that the sustainability of the country’s public finances is the ultimate safety net for financial stability, and therefore it should be a primary fiscal policy consideration.

Consequently, an effective coordination mechanism between policies and instruments, within and between institutions, should be established, as well as clear and transparent communication to fully explain the policy alternatives and choices undertaken by central banks.