Friday, May 30, 2014

Albania cuts rate 25 bps to boost inflation

   Albania's central bank cut its key interest rate by 25 basis points to 2.50 percent, saying a further easing of monetary conditions should help inflation return to the bank's 3.0 percent target.
    The Bank of Albania, which previously cut its rate by 25 basis points in February, said the rate reduction reflected the bank's view of low inflationary pressures in the quarters ahead in response to weak aggregate demand and the downward inflation trend in its trading partners.
    "This move contributes to boosting domestic consumption and investments, aiming at a fuller utilization of production capacities and a faster return of inflation to our target," the bank's governor, Ardian Fullani said in a statement.
    The central bank has now cut rates by 275 basis points since October 2011.
     Albania's inflation rate eased to 1.7 percent in April from 2.2 percent in March, below the bank's inflation target of 3.0 percent, plus/minus one percentage point.
    Production below the country's capacity has led to low increase in employment, wages and production costs and inflation expectations remain subdued, but close to the bank's target.

     Consumption and private investment rose in the first three months of this year, though at a lower pace than in the fourth quarter of 2013. In the fourth quarter of last year, Albania's Gross Domestic Product grew by an annual rate of 1.1 percent, up from contraction of 2.3 percent in the third quarter.   
    Fullani said data corroborated the bank's view of positive growth in the first months of the current year but the recovery of demand will be a determining factor for growth in 2014.
    "Today's key interest rate cut aims at providing a further boost to consumption and private investments, creating premises for lower financing costs in the banking sector," he said.
    Slow economic growth is also reflected in monetary indicators, with credit to the private sector down by 2.4 percent in March.
    But Fullani said the sluggish performance of credit also reflected banks' conservative lending policies in addition to weak demand.
    "In this regard, the Bank of Albania deems that the banking system in Albania has room for and should adopt a more appropriate behavior towards creating the Albanian economy," Fullani said.


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