TIRANA, Nov. 4 – Albania’s central bank announced on Wednesday it has cut the key interest rate by another 0.25 percentage points, taking it to a new historic low of 1.75 percent in an effort to give a new boost to sluggish consumption and lending.
The cut is the second for this year and the fourteenth consecutive slash since August 2011, when the key rate was at 5.25 percent.
The central bank’s move comes at a time when lending has plunged to moderate negative growth rates due to poor demand by both businesses and households and tight lending standards as non-performing loans stand at 20 percent and when inflation rate remains below its 3 percent target, hinting sluggish consumption.
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 in the national currency.
The loan rates, although considerably lower 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.
Lending suffered another blow last September when it contracted for the second month in a row, extending its year-on-year decline to 1.8 percent, according to data published by the country’s central bank
While savings by households have considerably been discouraged as interest rates stand below average inflation rates, lower interest rates on lek-denominated loans have failed to boost consumption and private investments, two of the country’s key drivers of growth.
Average interest rates on lek-denominated loans, which account for around 40 percent of total credit, rose to 8.18 percent last September, down from a record low of 7.73 percent last August, 8.46 percent in Sept. 2014, 10.14 percent in Sept. 2013 and 11.1 percent in Sept. 2012.
Meanwhile, average interest rates on 12-month deposits slightly rose to 1.27 percent last September , down from a historic low of 1.04 percent last August compared to an inflation rate of 2.2 percent in Sept. 2015.
Albania’s central bank says that it will continue applying an easy monetary policy until the first half of 2016.
