Key interest rate put at record low to stimulate economy

TIRANA, Nov. 30 – As hinted at the end of last October, Albania’s central bank lowered the key interest rate by another 0.25 percentage points this week, taking it to the lowest historical level in an effort to boost lending which after the 2008 crisis has hardly remained above the 10 percent levels. Speaking at a press conference on Wednesday, newly reconfirmed central bank governor Ardian Fullani said the move came after inflation pressures remaining within the 3 percent target and was aimed at further stimulating the country’s economy which is suffering low domestic demand and investments.
“This is a necessary measure and will give the much needed stimulus to preserve the country’s stability” said Fullani. What remains a concern is the escalation of the Eurozone crisis, with Albania’s key trade partners Italy and Greece in severe financial difficulty. According to Fullani, problems in the Eurozone area will affect demand for Albanian exports products which at a 20 percent growth rate have been the key source of economic growth for this year. The cut of the key interest rates by 0.5 percent in two separate BoA interventions during the past two months is expected to further lower interest rates on loans in the national currency, lek.
Albania’s central bank decided last October to keep the key interest rate for lek, unchanged at 5 percent after lowering it by 0.25 percentage points at the end of September 2011.
Economic and financial experts say the central bank should make bigger cuts to the repo rate in order to give a boost to lending which after the 2009 global financial crisis has been at slightly more than 10 percent compared to the pre-crisis levels of 30 to 50 percent. Albania’s central bank kept the repo rate at 5.25 percent from March 2011 to Sept. 2011 as inflation rates jumped above the 4 percent target. During the first half of 2011 inflation rate was at 4.05 percent, exceeding the 3ѱ percent target by 0.05, percent during the first half of this year. However, annual inflation rate dropped to a record low of 3.1 percent in August and 2.8 September 2011, also thanks to a bigger contribution by domestic agricultural production. During the third quarter of 2011, inflation rate was at 3.2 percent year-on-year. Soaring oil and food prices in international markets were the key reason for reason for inflation rates reaching up to 4.5 percent. The central bank estimates that the GDP growth has preserved the early 2011 rates even in the second quarter and third of this year. Latest data published by the country’s Institute of Statistics show the Albanian economy grew by 3.4 percent in the first quarter of 2011 year-on-year with transport, industry, construction and trade as the key sectors contributing to the growth. The Albanian government expects the country’s economy to grow by 4 percent this year, twice higher compared to what international financial institutions such as the IMF and the World Bank predict for the Balkan country.