Higher Prices Expected Till End Of Year, Central Bank Says

TIRANA, June 9 – The Bank of Albania has decided leave its key interest rate unchanged at 6.25 percent.
Governor Adrian Fullani said that the first quarter of 2008 continued to be characterized by relatively complex worldwide economic developments. On the other hand, the financial markets have not relaxed, reflecting the spread of the credit crisis generated by the US economy.
Given its small size and being relatively open, the Albanian economy cannot escape being affected by these developments. As a result, there was noted an accelerated rise in overall consumer prices. As of the end of April, annual inflation rose to 4.4 percent, shifting slightly above the upper level of 4 percent targeted by the Bank of Albania.
Fullani said this increase was overwhelmingly affected by the rise in the costs of food. Within this group, processed food rose the most. Another factor accounting for overall price increases is the rise in the price of energy in March 2008.
Other important indicators which best describe the inflationary pressures caused by the domestic demand in economy, such as that of core inflation and non-tradable goods’ inflation, are still low. In addition, the banking system, business and consumer expectations remain within the targeted parameters, regardless of the slight upward shift, he said.
The new data on agricultural activity for all of 2007 show that agriculture grew moderately by 1.5 percent during 2007 relative to 4.3 percent the previous year.
The Bank of Albania reiterates the need for deep structural reforms related to land, property, the collection and distribution, as well as with infrastructure.
Construction continues to be characterized by a vague setting in the first quarter of 2008 which requires careful attention, considering the role and contribution this sector has on the domestic economy.
The energy challenge remains a public problem and the soundness of KESH’s financial situation must be acted upon. Lastly, the rapid privatization of the distribution network is of priority, it adds.
Also, the trade deficit grew by about 17 percent compared to the same period the previous year. Fiscal developments in the first quarter 2008 have provided evidence for a prudent fiscal policy which has resulted in a budget surplus above the projected level.
In general, the banking system has supplied the economy with monetary assets, mainly through the injection of money in the form of credit to the private sector.
The key interest rate remained unchanged at 6.25 percent in the first quarter of 2008. In the first months of 2008, the performance of interest rates in the interbank and primary market was stable and their fluctuations were linked to the asymmetrical distribution of liquidity in the market.
For the rest of the year, and until the first quarter of the following year, the annual growth rates of the overall price level are expected to fluctuate around the current rates and return by the end of the year within the tolerance band targeted by monetary policy.
The costs deriving from the price rise of raw materials, oil and foods are expected to continue to exert direct pressures on consumer prices and provide indirect impact on producer prices.
Domestic agricultural production is expected to be a determining factor originating from the inside. As of the end of April 2008, inflation dropped by 0.4 percent in monthly terms as a result of the reduced contribution of foods and alcoholic beverages. For this reason, the performance of this factor will be of great interest in the months to follow.