TIRANA, May 4 – Albania central bank decided to keep the key interest rate at a historic low of 1.25 as inflation rate sharply picked up, but credit and domestic consumption remained sluggish.
The Bank of Albania has been keeping its key rate at a historic low of 1.25 since May 2016 when the country was facing disinflation pressure triggered by a sharp drop in international oil and food prices.
Speaking at a press conference this week, governor Gent Sejko said the country’s central bank would continue to apply its easy monetary policy until early 2018.
“The monetary policy will continue to remain easy in the medium term and the intensity of the monetary stimulus will not drop before the first quarter of 2018. This policy ensures the necessary stimulus on the promotion of economic activity and the return of inflation to the targeted level,” said Sejko.
Since late 2011, the central bank’s easier monetary policy has been mostly reflected on deposit rates and T-bill and bond yields on government’s internal borrowing, rather than lower loan interest rates.
While inflation rate picked up to 2.4 percent in the first quarter of this year, credit struggled to return to positive growth rates.
Poor demand by both businesses and households as well as tight lending banks apply due to non-performing loans at about 20 percent continue to keep credit at almost unchanged levels since more than a year.
With domestic demand for new credit at poor levels, commercial banks have recently shifted to lending abroad, mainly in neighboring Kosovo.
The central bank explains the poor transmission of monetary policy with the high level of euroisation, as euro-denominated deposits and loans accounting for half of the total and has announced measures to implement a de-eurisation strategy that would accelerate the reduction of the current high levels of foreign currency in the country’s banking system.
