TIRANA, April 13 – The consecutive cuts to the key interest rates are serving more the government to reduce its internal borrowing costs rather than businesses and households who continue facing tight lending standards due to the high level of non-performing loans.
The Albanian government borrowed about 4 billion lek (€28.7 million) this week in two 10-year lek-denominated bonds at yields about 2 percentage points lower compared to last January.
The 10-year fixed-rate bond was issued at 5.8 percent this week compared to 7.9 percent in mid-January 2016.
Strong demand by banks as lending is failing to recover also played a key role.
Meanwhile, yields on 12-month T-bills, the government’s key instrument for internal borrowing, dropped to 1.55 percent in the latest Bank of Albania auction, down from 2.21 percent in early January 2016.
Experts explain the declining trend in T-bill yields with the consecutive cuts to the key rate and more active participation by commercial banks which have turned to investments in government securities due to poor demand for new loans and tight lending standards as non-performing loans continue remaining high at 17 percent although on a downward trend since their peak level of 25 percent in mid-2014.
Last week, Albania’s central bank cut the key interest rate by another 0.25 percent to a historic low of 1.5 percent in a new effort to boost sluggish consumption and credit. The move came after lending contracted by an annual 2.2 percent last February and inflation rate hit a 13-year low of 0.2 percent, significantly below the central bank’s 3 percent target, sparking deflation concerns.
