Albania's central bank maintained its key interest rate at 2.75 percent and said it will maintain the same stimulating policy in the medium term as inflationary pressures will remain subdued.
But the Bank of Albania, which has cut rates by 250 basis points since October 2011 and most recently by 25 points in February, voiced confidence that the economy was improving, with indicators of growth, businesses perception and financial markets improving faster than expected.
"New information signals that 2014 may be a turning point for the economic activity in Albania," the bank's governor, Ardian Fullani said after a meeting of the bank's supervisory council.
Albania’s inflation rate averaged 1.9 percent in the first quarter of 2014 and in March it rose to 2.2 percent from 1.9 percent in February, returning to the bank’s target band. The bank
targets inflation of 3.0 percent, plus/minus one percentage point.Fullani expects inflation four quarters ahead to range between 0.5 percent and 3.9 percent.
Albania’s inflation rate has remained low due to the weak economy, downward imported inflation and anchored inflationary expectations, he said after a meeting of its supervisory council.
But the combination of an expected improvement in the world economy, implementation of stimulating macroeconomic policies and an acceleration of structural reforms "signals that the Albanian economy may gradually improve in the quarters ahead," Fullani said.
Albania's Gross Domestic Product expanded by 2.32 percent in the fourth quarter after 2.0 percent quarterly contraction in the third quarter. On an annual basis GDP rose by 1.1 percent compared with shrinkage of 2.3 percent in the third quarter.
For the full year, Albania's economy expanded by 0.7 percent and the International Monetary Fund forecasts 2.1 percent growth this year, rising to 3.3 percent in 2015.
Fullani said the increase in fourth quarter activity was broadly due to a positive performance of domestic private demand while the contribution of the public sector and net exports was negative.
But economic growth is expected to be more balanced this year, driven by both domestic and external demand, with improving confidence enabling the real sector to benefit from the monetary stimulus.
"Looking ahead, our basic projections suggest that, after a weak performance in 2013, the trajectory of the Albanian economy will be upward in the medium-term horizon," he said.
In the short term, however, the cyclical weakness of aggregate demand is expected to keep the economy below its potential, accompanied by weak inflationary pressure.