“The performance of electricity generation, the agriculture sector, oil prices, raw materials and ready-made products in international markets have a huge impact on Albania’s economic activity and inflation rate,” says governor Fullani.
TIRANA, July 30 – The Albanian economy is back on track but the country’s economic development remains at risk of insufficient sustainable growth resources, supply shocks and the structural reforms, say the central bank governor.
Speaking this week, Bank of Albania governor Ardian Fullani pointed out four key risks.
“The number one risk is that growth resources are not sustainable, the second risk is that the Albanian economy is very sensitive to supply shocks, the third risk is that forecasts are conditioned by the pursue of programmed courses of macroeconomic policies which should continue remaining careful in balancing short-term stimulus and mid and long-term equilibriums. The final risk is that the performance of the Albanian economy will depend on the acceleration of structural reforms at a macro and micro level,” said Fullani at a press conference.
Speaking about supply shocks, Fullani said “the performance of electricity generation, the agriculture sector, oil prices, raw materials and ready-made products in international markets have a huge impact on Albania’s economic activity and inflation rate.”
The central bank estimates that insecurity among households and businesses continues preventing the recovery of consumption and private investments, two key drivers of the Albanian economy which is projected to grow by 2 percent this year after registering the lowest growth rate in more than a decade in 2013.
“Albanian consumers and households seem hesitant about increasing consumption and investments, despite interest rates in the banking system,” said Fullani.
Key rate unchanged
Albania’s central bank announced it has decided to keep the key interest rate unchanged at a historic low of 2.5 percent as inflation rate during this year stands below the central bank’s lower limit. At an average of 1.76 percent for the first half of this year, the inflation rate continued remaining below the central bank’s lower limit of the target range of 2 to 4 percent, a situation reflecting sluggish internal demand which is the key driver of Albania’s growth.
With lending continuing remaining at moderate negative growth rates of around 2 percent and inflation rate below the target, the central bank made a new cut to the key interest rate in late May 2014 an effort to give a boost to consumption and private investments whose sluggish performance is affecting growth.
The cut to the key interest rate is the second for this year and the eleventh consecutive slash by 0.25 percentage points since September 2011 when the central bank adopted an easier monetary policy to handle crisis impacts.
However, the moves have mostly been reflected on lower interest rates for lek-denominated deposits and T-bill yields, which have almost halved during the past year, while interest rates on lek-denominated loans have registered only a slight decline.
More than half of Albanian businesses consider high interest rates as the key barrier in borrowing from banks, according to a survey carried out by the Bank of Albania. Businesses also consider credit insurance terms, the appropriateness of the credit structure and lack of transparency in the approval and monitoring of loans by banks as factors of average difficulty.
