Bank of Albania ready to lower interest base rate

TIRANA, July 21؂ank of Albania (BoA) is ready to lower its base interest rate for Lek, the Albanian currency. The institution has declared that such a decision is expected at the end of the summer tourist season. The decision itself will lower both credit costs and benefits from bank deposits
The current base interest rate is 5.75%, set on January 2009, after BoA’s Supervising Council lowered the previous 6.25% rate by 0.5 points. Back then, the decision to cut the base interest rate came as an attempt to restore faith in the banking system and boost credit in the economy by banks and shift the emphasis toward credit in Lek, rather than in foreign denominations, in order to cut down on risks from fluctuating exchange rates.
The current decision is coming after both second tier banks and businesses have pushed the central bank to cut down on its Lek base interest rate.
According to bankers, a lower base interest rate is necessary due to subsiding inflationary pressures, which, at some points this year, have been below the minimum threshold set by the Bank of Albania, signaling the need for more Lek to be injected into the market. In addition, interest rates for euro and the US dollar are at their historic lows, emphasizing the need for a lower cost Lek to compete with the foreign currencies and increase its circulation in the economy.
A lower cost Lek (a lower base interest rate) should boost economic activity in the country. One important effect regarding the decision will be lower credit costs to borrowers, therefore encouraging businesses and individuals to borrow more.
Only a few days ago, Gjok Uldedaj, head of the Albanian Chamber of Commerce, asked Ardian Fullani, BoA’s Governor, in a media conference to cut the base interest rate.
“Bank of Albania should consider the possibility of lowering the base interest rate to make it easier for business to borrow from banks since inflationary pressure is at its lowest,” said Uldedaj.
The request from the head of Albanian businesses came at a time when banks are being accused of tightening credit in fear of a financial and economic breakdown such as the one experienced last year globally, and despite BoA’s move last January that already cut the base interest rate by 0.5 points.