T-bill yields hit annual record low

TIRANA, Oct. 24 – T-bill yields registered another drop in the latest auction held by the Bank of Albania, positively reflecting the reduction of the key interest rate by 0.25 percent to 4 percent last July. Data show 12-month T-bill yields dropped to an average of 6.78 percent in the latest Oct.9 auction, down from 6.88 percent in the previous auction and a record 7.5 percent last March, registering the lowest rates for this year. Six-month T-bills also dropped to 6.13 percent, down from 6.16 percent previously and an average of 6.2 percent during the year.
Since Sept. 2011 the central bank has cut the key interest rate by 1.25 percent to 4 percent on low inflation pressures but the moves have been hardly reflected on lowering interest rates for lek-denominated loans and T-bill yields. Central bank governor Ardian Fullani has blamed West European banks present in Albania, which have withdrawn from government securities as the key reason for failure of the monetary policy to have an impact on lowering T-bills yields, which banks use as a reference to determine the interest rates for loans.
Latest central bank data show average interest rates for lek-denominated loans dropped to 11.1 percent, down from 11.4 percent last July and 12 percent in March 2012, when the key rate was lowered to 4.25 percent. While banks have lowered interest rates on lek-denominated loans by only 0.3 percent year-on-year, the drop in deposit interest rates has been 2.6 times higher. Interest rates on 12-month lek-deposits dropped to 5.1 percent in August 2012, down from 5.3 percent last July and 5.9 percent in August 2011.
Differently from loans, 63 percent of which are issued in foreign currency, mainly in Euro, the situation with deposits appears more balanced with lek deposits accounting for 52 percent of total deposits.
In late July 2012, Albania’s central bank cut the key interest rate by another 0.25 percent to 4 percent, the lowest ever historical rate, after previous consecutive cuts failed to either boost lending or lower T-bill yields.
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.