TIRANA, Jan. 14 – With the standard monetary policy easing having proved little efficient to boost sluggish lending and consumption, Albania’s central bank says it is considering undertaking quantitative easing in order to give a boost to the Albanian economy.
Quantitative easing is an unconventional monetary policy in which a central bank purchases government securities or other securities from the market in order to lower interest rates and increase the money supply, successfully applied by the U.S. Federal Reserve and the European Central Bank to stimulate economies after the outbreak of the global financial crisis in 2008.
“The easier monetary policy has had its effects. The cut in the key interest rate has had an impact on the increase in the credit portfolio but our expectations are more ambitious. Our target is higher than the expected economic growth so that both households and businesses can experience the effect of this growth first-hand,” said central bank governor Gent Sejko, adding that the central bank was also mulling quantitative easing to stimulate the economy.
“We have a specific situation because banks have excess liquidity. The challenge is to transfer this liquidity from the financial sector to the economy. We haven’t reached conclusions yet as we are still conducting research,” Sejko told Top Channel TV in an interview.
“We will intervene at the moment we judge as necessary either with quantitative easing which I consider as a little bit more complicated because there is no need, or other financial mechanisms or instruments to support lending and investments. The intervention will be necessary only if evidenced that both economic growth and lending are not on track,” the governor added.
Lending failed to return to positive growth rates for the fourth month in a row last November when it contracted by 2.2 percent year-on-year.
Tight lending standards because of non-performing loans standing at 20 percent and poor demand for new loans have contributed to the situation.
Interest rates on both lek and euro-denominated loans at historical lows are also proving inefficient to fuel demand on new loans.
Average interest rates on lek-denominated loans dropped to a historic low of 7.4 percent last November, when the central bank cut the key rate by another 0.25 percent to all-time low of 1.75.
Since late 2011 when the key rate was at 5.25 percent, the central bank’s easier monetary policy has been mostly reflected on deposit rates and T-bill yields on government’s internal borrowing, rather than lower loan interest rates.
The loan rates in the national currency, although considerably lower compared to the pre-crisis period, are still considered high and unaffordable by the business community because of being six times higher compared to the deposit rates which have dropped below the average inflation rate for the past year.
