TIRANA, Jan. 11 – With security yields in the national currency having embarked on an upward trend, the government is also seeking to borrow in Euro from the internal market considering the liquidity banks in Albania have in Europe’s single currency, accounting for half of total deposits and lending in the country’s banking system.
The government has announced it intends to borrow between €40 million to 50 million from the internal market in two-year notes in a Jan. 20 auction at a 0.75 indicative coupon rate, the same to late November 2016 when it borrowed €35 million. The yield is expected to be higher considering that interest rates on two-year Euro-denominated deposits rose to 0.76 percent last November, compared to 0.41 percent in October 2016.
Yields on government securities have more than doubled in the past six months following a downward trend taking them to historic lows in mid-2016 despite the key rate standing at a historic low of 1.25 percent, reflecting higher government demand for internal borrowing and lower interest by investors as yields had previously dropped to a historic low.
Yields on 12-month T-bills, the government’s key instrument for internal borrowing, rose to 3.22 percent in the latest Dec. 29 auction, in a gradual rising trend after hitting a historic low of 1.24 percent last June.
Meanwhile, yields on two-year notes, the government’s key instrument for long-term debt in the domestic market, also rose to 3.6 percent in the latest auction, up from a previous 3.35 percent and a record low of 1.5 percent last June.
The hike makes investment in government securities a much more favourable option compared to traditional bank deposits whose average interest rates for the national currency stand below 1 percent.
The Bank of Albania organizes on behalf of the Albanian government 3-month and 6-month T-bill auctions every month and 12-month T-bill auctions every two weeks.
Albania’s public debt hovering at 70 percent of the GDP and spending on interest rates at about 3 percent of the GDP are considered too high for the current stage of the Albanian economic development.
