Konfindustria disappointed over BoA decision on key rate

TIRANA, Nov. 5 – Few days after a public appeal to the Bank of Albania to cut the key rate in an effort to increase liquidity in the market Albania’s business community represented by the Konfindustria Association has expressed its disappointed over the latest central bank decision to keep the key interest rate unchanged at 4 percent.
“The Bank of Albania with its considerably and repeated delays during the 2009-2012 crisis and lack of clear efficiency in transmitting monetary policies to credit the real economy has a big part of responsibility in the unacceptable situation between a very liquid second-tier banking system with a continuous increase in deposits and the real Albanian economy which has been severely affected by lack of liquidity with long-term and harmful consequences to businesses, industries and welfare of the Albanian citizens” says Konfindustria in a statement.
According to Association, deposits in the banking system increased by Euro 700 million in the first quarter of 2012 mainly because of transfers by Albanian immigrants in crisis-hit neighbouring Greece and continued growing even in the coming months at a time when lending has considerably slowed down compared to last year.
The central bank has decided to keep the key interest rate unchanged at 4 percent, the lowest historical level, saying that monetary conditions were appropriate to meet inflation target in the mid-term. “The key interest rate at the lowest historical levels also ensures appropriate monetary stimulus to promote internal demand and support economic growth,” said governor Fullani. Since Sept. 2011 the central bank has lowered the key interest rate by 1.25 percent to 4 percent in five interventions in the monetary policy but the moves have been poorly reflected on lowering key interest rates for lek-denominated loans. The impacts have been more positive on T-bill yields which in the past few months have gone on a downward trend.
Latest central bank data show total lending grew by only 6.5 percent in the first eight months of this, almost half of the credit growth in 2012, reflecting the difficulty both businesses and consumers are facing as domestic consumption remains at low levels and new investments have been postponed. The situation with deposits appears more stable due to consumers’ saving trend fearing harsher times ahead and the transfer of deposits by migrants in Greece. In Aug. 2012, total deposits grew by 10 percent to 930 billion lek, reconfirming the confidence citizens have in the Albanian banking system which is also proved by the indicators such as the loan-to-deposit ratio at 60.4% and the capital adequacy ratio at 15.9%, above the BoA’s minimum requirement of 12%.