TIRANA, May 5 – Albania’s central bank has cut the key rate to a new historic low of 1.25 percent and revised downward the country’s 2016 economic outlook to 3 percent. The surprise move came after lending continued remaining at negative growth rates in the first quarter of the year and inflation rate grew by only 0.66 percent, sparking deflation concerns considering the Bank of Albania 3 percent target.
The new cut is the second for the year and the sixteenth consecutive slash since August 2011 when the key rate was at 5.25 percent. The new 0.25 percent cut is also another effort to boost sluggish lending and consumption which is keeping the country’s growth below potential.
The central bank says it will continue its easier monetary policy during 2016 and key rates could embark on an upward trend only in 2017.
Since late 2011, the central bank’s easier monetary policy has been mostly reflected on deposit rates and T-bill yields on government’s internal borrowing, rather than lower loan interest rates.
The loan rates, although considerably lower compared to the pre-crisis period, are still considered high and unaffordable by the business community because of being six times higher compared to the deposit rates which have dropped below 1 percent.
Speaking at a press conference, central bank governor Gent Sejko said the Albanian economy is projected to return to equilibrium in 2017 and inflation rate achieve its 3 percent target only by late 2018. He said the disinflation in early 2016 was a result of the sharp cut in international oil and food and agriculture products.
Commenting on the sluggish credit growth, the governor said there will be hesitation by both banks and businesses unless the business climate improves.
Non-performing loans at 17 percent are considered a key barrier for easier lending standards.
The central bank decided to keep unchanged the inter-bank market rates at 2.5 percent and the one-day deposit rate at 0.25 percent but reduced the one-day loan rate to 2.25 percent.
The Albanian government and the IMF expect the country’s economy to grow by 3.4 percent in 2016, following growth rates of 1 to 3 percent since the onset of the global crisis in 2009 and a pre-crisis decade of 6 percent.
