Cut in key interest rate immediately reflected on T-bill yields

TIRANA, Feb. 12 – The latest cut to the key interest rate by 0.25 percent to a historic low of 3.75 in the past couple of weeks has been immediately reflected in lower interest rates on government debt. Twelve-month T-bill yields dropped to 6.42 percent, down from 6.53 percent in the latest Bank of Albania auction this week while 6-month T-bill yields dropped to 6 percent down from 6.08 percent.
The central bank auctioned 16.7 billion lek in a tender held on February 12 characterized by a considerable number of competitive bids.
Yields on 12-month T-bills dropped to 6.53 percent in the latest January 29 auction, down from 6.6 percent previously, and a record 7.5 percent in March 2012.
A similar downward reflection is also expected on lek-denominated loans. Latest data by the central bank show average interest rates on lek-denominated loans climbed to 10.21 percent in November 2012, up from 9.11 percent in the previous month and 12.17 percent in November 2011. Average interest rates on Euro-denominated loans dropped to 7.3 percent in November 2012, down from 7.38 percent last October and 7.21 percent in November 2011.
Interest rates on 12-month lek-denominated deposits dropped to 5.25 percent in November 2012, down from an average of 5.85 percent a year ago.
The reduction in loan interest rates has been unable to increase lending which rose by only 4 percent during the first ten months of 2012.
Latest central bank data show total credit at the end of October 2012 was at 552 billion lek, up only 4 percent year-on-year. Compared to the end of 2011, total lending during the first ten months of this year has increased by only 10 billion lek or 1.9 percent.
Differently from loans, 63 percent of which are issued in foreign currency, mainly in Euro, the situation with deposits appears more balanced with lek deposits accounting for 52 percent of total deposits.
Albania’s central bank has made a new cut to the key interest rate taking it to a historic low of 3.75 percent in an effort to give a new impetus to the country’s ailing economy suffering crisis impacts from the Eurozone partners, and problems at home with sluggish consumption, high levels of public debt, and a sharp drop in lending as bad loans have reached a record 22 percent. Governor Ardian Fullani says the move is aimed at increasing the sluggish consumption and investments by easing lending in the national currency.