TIRANA, April 6 – Albania’s central bank has cut the key interest rate by another 0.25 percent to a new historic low of 1.5 percent in a new effort to boost sluggish consumption and credit.
The move comes 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.
The new cut also comes after appeals by the International Monetary Fund that the central bank should continue its easier monetary policy and last March’s decision by the European Central Bank to cut the eurozone’s main interest rate to zero.
“We will further monitor the situation and stand ready to undertake new easier policies in case deflationary shocks further affect consumption,” said central bank governor Gent Sejko.
The central bank has also lowered inter-bank market rates to 2.5 percent, down from 3.5 percent. The new interest rates for one-day deposits and loans will now be at 0.25 percent and 2.75 percent respectively, the bank said.
The latest cut in the key interest rate is the first for this year and the fifteenth consecutive slash since August 2011, when the key rate was at 5.25 percent.
Since late 2011, the central bank’s easier monetary policy has been mostly reflected on deposit rates and T-bill yields on government’s internal borrowing, rather than lower loan interest rates.
The loan rates, although considerably lower compared to the pre-crisis period, are still considered high and unaffordable by the business community because of being six times higher compared to the deposit rates which have dropped below the average inflation rate for the past year.
Albania’s central bank expects the inflation rate to remain at about 2 percent in 2016 and return to its 3 percent target only by mid-2018.
Central bank governor Gent Sejko says the low inflation pressure reflects the fact that employment and the capacity utilization rate remain below their potential and that stimulating policies are needed in the mid-term.
“Development in Greece, the low oil and basic product prices and the frequent fluctuations in financial markets have affected demand for Albanian exports and have not encouraged credit growth in the country,” says the central bank.
