The central bank had kept the key interest rate unchanged since last October when it lowered it by 0.5 percentage points
By ervin lisaku
TIRANA, July 28 – Albania’s central bank decided on Wednesday to lower the key interest rate by 0.25 percentage points taking it to 5 percent in another effort to increase lending in lek, the national currency. The move comes few days after the majority approved in Parliament budget cuts of 25 percent aimed at keeping public debt at 59.5 percent during this year and lowering budget deficit to 3.1 percent of the GDP.
Speaking at a press conference after the decision by the Supervisory Council of the Bank of Albania, governoβ Ardian Fullani said the decision was taken after positive developments in the country’s economic and monetary situation in the first half of this year and recent budget cuts.
“The economic activity registered a positive growth, the economy’s external balances improved and the financial markets had a better performance,” said Fullani.
However, he admitted 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 the 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.
Inflation pressures also remained low. The central bank’s goal of keeping the inflation rate at a 3 percent target, plus/minus 1 percent, was achieved in the first half of this year.
According to the central bank, the indirect indicators such as the increase in lending, improvement in budget revenue targets, and consumer and business expectations show GDP in the second quarter will increase by 2 percent the same as in the first three months. The GDP contracted by 0.8 percent in the last quarter of 2009.
However, the reaction by commercial banks after the cut in the repo rate remains to be seen as they have been slow in reflecting the central bank’s cuts in their lending rates in Albanian lek, which accounts for 32 percent of overall lending.
The central bank’s decision comes after repeated calls by government and some economy experts to lower the key interest rate, a measure which they say would ease the cost of government debt and stimulate the economy.
The central bank had kept the key interest rate unchanged since last October when it lowered it by 0.5 percentage points.
Last June, Finance Minister Ridvan Bode publicly criticized the central bank’s monetary policy accusing it of awkwardness in treating the crisis and incoherent measures compared to those taken by other European central banks.
“Because of the economic competition, the businesses’ profit rate is getting lower and lending in high interest rates of course creates problems,” added the minister.
The Albanian economy saw a significant decline in its growth rate in 2009, from 7.9 per cent in 2008 to an estimated 3.3 per cent in 2009, but remained one of the few European economies which did not suffer a recession.
The European Bank for Reconstruction and Development (EBRD) says Albanian GDP will grow by 1.4 percent this year while the IMF expects 2.3 percent in 2010 and 3.2 in 2011. Meanwhile, government expects a 4.1 percent growth after budget review.
