Thursday, November 28, 2013

Albania cuts rate amid low inflation, fiscal tightening

    Albania's central bank cut its benchmark repurchase rate by another 25 basis points to 3.25 percent to help stimulate economic growth and meet the bank's inflation target amid fiscal tightening.
    The Bank of Albania, which has cut its rate by 75 basis points this year, said it expects inflationary pressures to remain weak due to low demand-side pressures as the Albanian economy continues to operate below its potential.
    "Economic growth its expected to remain weak and not generate inflationary pressures," the bank said after meeting of its supervisory council on Nov. 27.
    Albania's headline inflation rate was stable at 1.7 percent in October and September, below the central bank's target of end-year inflation of 3.0 percent, plus/minus one percentage point.
    Albania's Gross Domestic Product expanded by 1.0 percent in the second quarter from the first quarter for annual growth of 1.1 percent, down from 1.8 percent in the first quarter.
    The central bank said the government's fiscal stimulus faded significantly in the third quarter and high levels of public debt is limiting the ability of fiscal policy to support economic activity.

    Next year the fiscal contraction is expected to continue, and while this will influence economic activity, lower public borrowing should also make more room for higher private sector borrowing.
    "Given the expected direction for the next fiscal year, this action aims to maintain macroeconomic stimulus in the economy and create more favorable conditions for meeting our inflation target," the bank said, adding it considers "fiscal correction in the next year is necessary to restore the public debt to more sustainable parameters."
    Demand for credit in Albania is low with credit to the private sector down by 2.6 percent at the end of September compared with last year and the banking system has adopted a conservative approach to lending in response to the growth of bad loans on their balance sheets and tighter policies imposed by parent banks.


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