TIRANA, May 29 – Central Bank Governor Ardian Fullani has admitted the key interest rate cuts have failed to provide lower interest rates for lek-denominated loans or T-bills yields. The announcement came at a press conference this week after the Bank of Albania Supervisory Council decided to keep the key interest rate unchanged at 4.25 percent, the lowest historical level, considering the monetary conditions as appropriate to achieve the mid-term inflation target and stimulate demand.
“Interest rates for lek-denominated loans have not fully reacted to facilitating signals, reflecting an increase in premium risks for credit to special branches of the economy,” said Fullani, adding that T-bill yields have also stayed at the same levels while interest rates on lek deposits have lowered.
Although having lowered the key interest rate by 1 percentage point to a historical record low of 4.25 percent since Sept 2011, the Bank of Albania interventions in the monetary policy have not been reflected at all in lowering interest rates for loans in the domestic currency lek, and T-bill yields. Latest data published by the Bank of Albania show average interest rates for loans in lek rose to 12 percent in March 2012 when the key interest rate was at 4.25 percent compared to 11.1 percent in Sept. 2011 when the key rate stood at 5.25 percent. The opposite has happened with interest rates for Euro-denominated loans which hold the majority of 65 of credit in Albania. Since Nov. 2011, when the European Central Bank cut the key interest rate by 0.25 percent to 1 percent, average interest rates for loans in Euro have dropped from an average of 7.5 percent in Sept. 11 to 6.9 percent in Feb. 2012. However, in March 2012 average interest rates for Euro-denominated loans rose again to 7.5 percent. The key interest rate cuts have also been reflected in lek-denominated deposit interest rates which have dropped from an average of 5.9 percent in Sept. 2011 to 5.7 percent in March 2012.
12-month T-bill yields have also been on upward trend since Dec. 2011 climbing from 6.95 percent to 7.34 percent in March 2012.
Both lending and deposit growth rates stood at the same levels of around 11 percent during the first quarter of 2012, revealing an ongoing saving trend and hesitation about new investments as domestic consumption fails to recover. Tighter lending standards as one in five loans is now officially considered non-performing and poor demand by both consumers and businesses have also affected credit growth. In the 2009-2011 period, lending grew at moderate rates of 10 to 13 percent annually compared to the pre-crisis levels of 30 to 50 percent.
Economy to continue suffering
Bank of Albania governor Ardian Fullani says the Albanian economy will continue suffering in the next few quarters conditioned by the developments in the euro area, and domestic consumption performance. In a press conference on Tuesday, governor Fullani said the Albanian economy will continue growing below its potential even in the next few quarters because of moderate “external demand, lack of fiscal stimulus and poor internal demand.”
The central bank says the economy slowed down in the first quarter, influenced also by severe weather conditioned, but mainly on poor performance of domestic consumption and exports. Facing poor consumer demand, businesses are reported to have delayed investments while the contribution of public investments has had negative contribution in the aggregate demand.
“The slow growth of exports remains concerning as long as it influences on the performance of the economy in 2012 and illustrates Albania’s strong dependency on some certain geographical markets or products,” said Fullani, implying Italy, and Greece, Albania’s top trade partners, which face severe crisis consequences.
After an average of 1 percent in the first quarter of 2011, two percent below the central bank’s traget, inflation is expected to slightly accelerate during the rest of the year.
The Albanian economy grew by 3.1 percent in 2011, remaining at the same moderate growth rates for the third year in a row, according to INSTAT. In its latest review of the macroeconomic and fiscal framework, government left its growth expectations for 2012 to 2013 unchanged at 4.3 and 5 percent, respectively, 2 to 3 times higher compared to what international financial institutions expect.
