Key interest rate kept unchanged at 2.5%

The Bank of Albania supervisory council says returning inflation to the 3 percent target would require the preservation of the key interest rate at low levels for several consecutive quarters.
TIRANA, Sept. 25 – With lending having returned to positive growth rates after a 12-month moderate decline of around 2 percent and inflation rate remaining below the Bank of Albania’s lower limit of the target range of 2 to 4 percent, Albania’s central bank has decided to keep the key interest rate unchanged at a historic low of 2.5 percent.
The Bank of Albania supervisory council which has been reduced to five members after the arrest of its governor over a Euro 5 million theft scandal and the resignation of another member, said returning inflation to the 3 percent target would require the preservation of the key interest rate at low levels for several consecutive quarters.
At an average of 1.8 percent for the first eight months of this year, the inflation rate continued remaining below the central bank’s lower limit of the target range of 2 to 4 percent, a situation reflecting sluggish internal demand which is the key driver of Albania’s growth.
Data published by the country’s state statistical institute, INSTAT, shows the inflation rate was up by 2 percent year-on-year in August 2014, the peak of the tourist season, yet remaining below the central bank’s mid-term target of 3 percent.
Albania’s central bank estimates that by preserving the inflation rate at around the 3 percent rate, the monetary policy will continue having a positive contribution to the development of the Albanian economy. “This targeted inflation rate and the monetary policy applied for its achievement, positively affects the stability of economic growth rates as has been proved in recent years,” says the central bank.
The country’s central bank says the Albania economy has accelerated in the second and third quarters of 2014 after growing by 1.65 percent in the year’s first quarter.
However, the performance of consumption and private investments, the two key drivers of Albania’s growth, remains fragile as long as it is not supported by sustainable improvements in the labour market, progress in the global economy and solid growth in financing resources, including foreign direct investment and lending by the banking system.
The last time the Bank of Albania eased its monetary policy was in late May 2014 when it cut the key rate by another 0.25 percent to a historic low of 2.5 percent.
The cut to the key interest rate was the second for this year and the eleventh consecutive slash by 0.25 percentage points since September 2011 when the central bank adopted an easier monetary policy to handle crisis impacts.
However, the consecutive moves have mostly been reflected on lower interest rates for lek-denominated deposits and T-bill yields, which have almost halved during the past year, while interest rates on lek-denominated loans have registered only a slight decline.
Few days after the arrest of the country’s central bank governor over a Euro 5 million theft scandal, the Albanian Association of Banks representing the 16 commercial banks operating in the country has assured the Albanian banking system remains liquid, well-capitalized and sustainable.
After the arrest of the central bank governor earlier this month, the Bank of Albania’s supervisory council proposed to Parliament the dismissal of Fullani as Bank of Albania governor and replaced him with Elisabeta Gjoni, the first deputy governor, who will be the acting governor until the election of a new governor.
Ardian Civici, a member of the BoA Supervisory Council has also resigned leaving the decision-making body with five out of nine members, and risking its quorum.