Tirana Times
TIRANA, August 2 – Businesses are skeptical the central bank’s decision to lower the key interest rate will increase lending to the private sector because of the “deformed banking market.” The warning was given last weekend by Konfindustria, an association made up of mainly manufacturing industries, few days after the Bank of Albania decided to lower the repo rate by 0.25 percentage points to 5 percent.
“There is limited possibility that the decision will be transmitted and have an impact to soften lending standards for businesses in the second-tier banks,” said Konfindustria, adding that current interest rates remain among the highest in Europe and in the region.
The Association said the cut in the repo rate is unlikely to bring positive results because of the low competitiveness among banking operators which shows clear signs of an oligopoly.
Furthermore, considering that lending in the national currency, lek, accounts for only 30 percent of the total loans, the central bank’s decision would in the best case have minor impact on the country’s real economy, said Konfindustria in a statement.
However, Konfinsustria says it supports in principle the Bank of Albania’s decision to lower the repo rate at a time when foreign currency inflows significantly increase because of the arrival of hundreds of thousands of immigrants and foreign tourists spending their holidays in Albania.
Konfindustria said in its latest report the country’s main industries continued suffering from lack of liquidity in the first half of this year.
The central bank’s decision came after significant cuts in spending of up to 39 billion lek (390 million dollars) aimed at keeping public debt levels at 59.5 percent and reducing budget deficit to 3.1 percent by the end of the year.
Governor Ardian Fullani warned in his latest press conference after the repo rate cut that the Albanian economy continues suffering from low internal demand and lack of investments. The governor said consumer spending during the first half of 2010 remained constrained with an increasing trend of saving because of a drop in consumer loans and remittances.
Private investments during the first six months of this year also had a declining trend mainly because of tight lending standards and low use of capacities in the economy.
Civici: Cut to bring positive effects
Adrian Civici, one of the members of the Supervisory Council of the Bank of Albania, said the repo rate was lowered only after government gave evidence of withdrawing from its expansionary fiscal policies by cutting budget and bringing the budget deficit down.
Speaking to reporters, Civici said the effects of this cut in the banking system are expected to be faster and more efficient because of government’s careful stance to the public debt and declining risks in financial markets.
Civici said the central bank would not further lower the key interest rate in the short-term before seeing the reflection by commercial banks.
The latest Finance Ministry data show interest rates for loans in the national currency, lek, were at 12.66 percent for 12-month loans and at 16.43 percent for 6-month loans.
