12-month T-bill yields, which account for around 41 percent Albania’s total domestic debt, have 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
TIRANA, May 20 – 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. The consecutive cuts to the key interest rate by around 1.5 percentage points since September 2011 have had a minor impact on lowering loan interest rates and stimulating consumption growth or investments as demand for new loans by crisis-hit consumers and businesses remains sluggish. 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. Twelve-month treasury bills accounted for around 41 percent or 206 billion lek of Albania’s total domestic debt at the end of the first quarter of 2013, according to Finance Ministry data. Yields on 12-month T-bills have been on a downward trend since March 2012, when they were at a record 7.5 percent.
Six-month T-bills, which account for 8 percent of the country’s domestic debt, dropped to 5.79 percent in the latest Bank of Albania auction, down from 5.94 percent in the previous auction and 6.08 percent at the beginning of the year.
Meanwhile, two-year government bonds dropped to 6.78 percent in the latest May 16 auction down from a fixed coupon of 7.69 percent at the beginning of this year. Two-year treasury bonds accounted for around 16 percent of Albania’s long-term domestic public debt stock, according to Finance Ministry data.
In order to participate in T-bill auctions, individuals must open a bank account with a minimum of 300,000 lek (Euro 2,132) in licensed institutions and order them to make the purchases.
The Bank of Albania organizes 3-month and 6-month T-bill auctions every month and 12-Month T-Bill auctions every two weeks. T-bills are issued and guaranteed by the Ministry of Finance on behalf of the Albanian government.
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.
Central bank governor Ardian Fullani said the latest cut to the key interest rate at the end of January 2013 had been positively reflected in lowering T-bill yields but had given a minor impact on lowering loan interest rates which remain at almost the same levels compared to early 2012 when the key rate was at 4.5 percent.
Latest Bank of Albania data show average interest rates on lek-denominated loans dropped to 11.14 percent in March 2013, down from 11.78 percent last February and 11.96 percent in March 2012. Meanwhile, interest rates on Euro-denominated loans, which account for around 60 percent of total lending dropped to 6.85 percent, down from 7.03 percent last February and 7.54 percent in March 2012.
Interest rates on 12-month lek-denominated deposits rose to 5.36 percent in March 2013, up from 5.25 percent last February and 5.68 percent in March 2012. Interest rates on 12-month Euro-denominated deposits also rose to 2.84 percent in March 2013, up from 2.79 percent last February and 3.29 percent in March 2012.
The drop in T-bill yields is expected to have a positive impact on lowering the cost of the country’s domestic public debt. Finance Ministry data show Albania’s total public debt climbed to around 828 billion lek or 61.51 percent of the GDP at the end of 2012, with domestic debt accounting for 34.94 percent and external debt at 26.57 percent.
Albania’s public debt stock climbed by another 31 billion lek (Euro 216 million) to a total of around 860 billion lek (around Euro 6 billion) in the first quarter of 2013, according to a report by the Finance Ministry which did not provide a GDP ratio for the public debt.
For the first time in the past decade, public debt has officially jumped above the former 60 percent of the GDP statutory limit, posing a real threat to Albania’s macro-economic stability as crisis impacts from the Eurozone intensify. Total debt service in 2012 climbed to 52.16 billion lek, up from 48.7 billion lek in 2011, accounting for 3.88 percent of the GDP, up 0.12 percent compared to 2011.
Albania’s public debt, a sizable part of which is domestic, has a large short-term component, implying risk of rollover,” warn the international financial institutions.
