TIRANA, July 25 – Yields on government securities have almost remained unchanged in the past four months following sharp fluctuations between mid-2016 and early 2017.
The situation comes at a time when the key interest rate has been held at a historic low of 1.25 percent for more than a year and credit is struggling to return to positive growth rates amid high level of non-performing loans and poor demand by both businesses and households.
Central bank data shows yields on 12-month T-bills, the government’s key instrument for internal borrowing, have remained stable at about 2 percent since late March, down from 3.22 in late December 2016, following a gradual upward trend after hitting a historic low of 1.24 percent in mid-2016.
Yields on 12-month T-bills only temporarily fell to 1.8 percent last April to recover to an average of 2 percent in the next three months.
In this week’s action, 12-month T-bill yields only slightly recovered to 2.14 percent, up from 2.1 percent in the previous auction.
The stable rates have been triggered by rising interest to invest in government securities by banks and investment funds making use of their ample liquidity and individuals benefiting higher interest rates compared to traditional deposits whose rates are now close to zero.
Meanwhile, yields on two-year notes, the government’s key instrument for long-term debt in the domestic market, slightly rose to 2.64 percent in this week’s auction, up from 2.55 percent last June, but were down from 3.8 percent in January 2017.
Back in June 2016, yields on two-year notes dropped to a historic low of 1.5 percent as the country’s central bank cut the key rate by another 0.25 percentage points to an all-time low of 1.25 percent.
Domestic debt accounted for slightly more than half of Albania’s 67 percent of the GDP public debt at the end of the first half of this year when the banking system held about two-thirds of it.
The Albanian government has held only one Euro-denominated auction this year, in line with the central bank’s de-euroisation initiative to discourage savings and credit in Europe’s single currency currently accounting for half of total deposits and loans in a bid to improve the transmission of its easier monetary policy.
The Albanian government borrowed about €40 million in 2-year Euro-denominated notes in January 2017 at a 0.8 percent yield.
The Bank of Albania organizes 3-month and 6-month T-bill auctions every month and 12-month T-bill auctions every two weeks. T-bills are issued and guaranteed by the Ministry of Finance on behalf of the Albanian government.
