Tirana Times
TIRANA, June 7 – Government and some economy experts have re-iterated their request to central to lower the key interest rate, a measure which they say would ease the cost of government debt and stimulate the economy.
Ruling Democratic Party lawmaker Selami Xhepa suggests that it’s high time the Bank of Albania lowered its key interest rate, currently at 5.25 percent, unchanged since October 2009, when the central bank lowered it by 0.5 percentage points.
According Xhepa, a former deputy Finance Minister, the cut in the key interest rate would also be important for commercial banks which are experiencing an increase in their bad loan portfolios.
“The situation of the country’s economy requires some stimulating measures in the monetary policy. The confidence of Albanian public in the banking system is admirable. There has been a considerable increase of deposits in the banking system which means that the confidence is returning and there are no risks related to financial stability,” said Xhepa, adding that a decrease in the interest rate would also improve the inter-banking market, lowering lending costs in the system.
Meanwhile, economy expert Zef Preci doubts the commercial banks could have signed a secret agreement to keep the loan interest rates at high rates.
“The fact that a high interest rate has been kept for a long time, pushes me to think, although I have no evidence, of a silent agreement between the banks and the continued control of the majority of deposits by one or two banks, inherited before the privatization, has maybe given them an advantage which is an extra cost to the Albanian state and taxpayers,” said Preci.
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.
Earlier, this month 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.
However, the central bank says a further cut in the key interest rate could cause the depreciation of the national currency, lek, and bring rapid inflation. The central bank’s main goal is keeping the inflation rate at a 3 percent target, plus/minus 1 percent, a target it has achieved in the first months of this year.
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.
