TIRANA, Dec. 17 – Albania’s central bank decided this week to keep the key rate at a historic low of 1.75 percent in a bid to continue supporting sluggish consumption and lending.
Speaking at a press conference, central bank governor Gent Sejko said the easier monetary policy has been positively reflected by reducing lending costs and increasing credit in the national currency.
“The expected recovery in the economic activity and the effect of the measures reducing non-performing loans will support an increase in loan demand and banks’ readiness to accommodate this demand,” said Sejko.
“Keeping the key interest rate unchanged creates extra space for the full transmission of the monetary stimulus during 2015 in financial and economic markets,” he added.
Last November, the central bank cut the key interest rate by another 0.25 percentage points, taking it to a new historic low of 1.75 percent in an effort to give a new boost to sluggish consumption and lending which are holding back economic recovery.
The cut was the second for this year and the fourteenth consecutive slash since August 2011, when the key rate was at 5.25 percent.
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 the average inflation rate for the past year.
Lending to the economy slightly recovered last October but continued remaining at negative growth rates for the third month in a row, according to data published by the country’s central bank.
Data shows lending contracted by 1.5 percent year-on-year in October 2015 due to poor demand for new loans and tight lending standards as non-performing loans stand at 20 percent.
Interest rates on both lek and euro-denominated loans at historical lows are also proving inefficient to fuel demand on new loans.
