The Bank of Albania did not take into consideration calls by experts of a new cut and the latest move by the European Central Bank which in early May 2013 cut its key interest rate by a quarter point to a record low of 0.5 percent as part of efforts to help dig the Eurozone out of recession
TIRANA, May 29 – Albania’s central bank has decided to keep the key interest rate unchanged at a historic low level of 3.75 percent for the fourth consecutive month, saying that monetary conditions were appropriate to meet the inflation rate target and stimulate internal demand. This despite calls by experts of a new cut and the latest move by the European Central Bank which in early May 2013 cut its key interest rate by a quarter point to a record low of 0.5 percent as part of efforts to help dig the Eurozone out of recession.
Speaking in a press conference on Wednesday governor Ardian Fullani said the previous cuts to the key interest rate were gradually being translated into lower loan rates for both the public and private sectors and that the recent ease of some supervisory and regulatory requirements for banks would further stimulate credit growth.
The central bank says it will continue easing the monetary policy in the right time depending on inflation pressures and its 3ѱ percent target band.
Central bank governor Fullani reiterated his appeal for a clear fiscal rule on public debt which has jumped to around 62 percent after the 60 percent ceiling was lifted in late 2012.
“Preserving the stability of public debt helps curb insecurity and risk premiums. Low and controlled public debt creates a better environment for private initiative by preserving low interest rates and increasing available funds, thus helping the country’s long-term growth and stability,” said Fullani.
Low inflation pressures have allowed the Bank of Albania to cut the key interest rate by 1.5 percentage points to a historic low of 3.75 percent since Sept. 2011 in an effort to stimulate the economy but the moves have been poorly reflected in lower loan interest rates and an increase in consumption or investments.
With the key interest rate standing at a historic low of 3.75 percent, the positive impacts of the easy monetary policy the central bank has been following since around two years have mostly been reflected on lower T-bill yields on government’s domestic debt. In the latest auction organized by the Bank of Albania 12-month T-bill yields dropped to a record low of 5.9 percent, down from 5.99 percent in the previous action and 6.35 percent at the beginning of 2013 when the key interest rate was at 4 percent.
Credit growth dropped to a record low of 1.8 percent in March 2013 while deposits slowed down to 5.4 percent.
In 2012, inflation rate dropped to 2 percent, down from 3.5 percent in 2011, remaining below the Bank of Albania 3 percent target. In the first quarter of 2013, inflation rate rose by an average of 2.5 percent.
Albania’s central bank expects the Albanian economy to grow at around the same levels of 2012, when at 1.6 percent it registered the lowest growth rate since the collapse of the notorious pyramid schemes in 1997, and half of the average of 3 percent growth rate from 2009 to 2011. The forecast is in line with international financial institutions which expect the Albanian economy to grow between 1.5 to 1.8 percent compared to government’s projection of a 3.1 percent growth for 2013.
In its latest monetary policy report for the first quarter of 2013, the central Bank estimates growth will remain at around the same levels of 2012 with foreign demand and fiscal policy as the key drivers of growth. “The performance of consumption and private investments remains poor while growth below potential will keep inflation pressures at low levels and within the central bank’s 3ѱ percent target band.”
The performance of the Albanian economy will continue being conditioned by unfavourable developments in the economies of top trade partners, especially in the first half of 2013, says the central bank referring to crisis-hit Italy and Greece, and the impact they will have on the slowdown of Albanian exports.
The central bank also stresses the need to continue structural reforms in order to increase the productivity and competitiveness of the Albanian economy. These reforms pave the way to boosting economic potentials and must be considered as the key instrument in supporting the country’s sustainable long-term growth.
“Strengthening property rights, improving contract enforcement, and simplifying the tax system would encourage investment and medium-term growth,” suggests the IMF in its latest country report on Albania.
