TIRANA (Albania), March 25 (SeeNews) – Albania's central bank said it decided to cut its key interest rate to a record low of 0.5% from 1% aiming to mitigate the impact of the coronavirus pandemic on the country's economic and financial health.
The interest rate corridor in the interbank money market will be revised down to 0.90% from 1.90% for the overnight lending rate while the interest for the overnight deposit rate remained unchanged at 0.10%, the Bank of Albania said in a statement, following a meeting of its rate-setting supervisory council.
The central bank last changed its monetary policy rate in June 2018, lowering it by 25 basis points to 1.0% amid strong appreciation of the lek currency which increased downside pressure on inflation.
The spread of the coronavirus pandemic in Albania poses a challenge to the economy and financial sector, central bank governor Gent Sejko said in the statement.
The necessary precautionary measures taken by the authorities to limit the spread of the coronavirus will have a dual impact on economic activity, Sejko said, adding that the temporary reduction in production and employment leads to a decrease in the supply of goods and services in the market and a reduction in household income. On the other hand, social distancing brings about a decline in demand, as well as shrinking sales, revenue and business liquidity, he noted.
The cut of the key interest rate is a necessary measure to reduce the cost of new borrowing, the cost of servicing the existing debt, and to facilitate the flow of liquidity to businesses and households, Sejko noted, adding that the key interest rate facilitates the smooth functioning of the monetary policy transmission mechanism as well as relieves pressure on economic operators.
According to Sejko, the central bank has increased its operational capacity to guarantee the supply of the economy with currency and banknotes, as well as to ensure the smooth functioning of the electronic payment system.
“The Bank of Albania has adopted the operational strategy of unlimited liquidity injection into the banking sector,” Sejko said, adding that the supervisory council of the bank has also decided to simplify the postponement procedures by a quarter of the payment of loan installments to businesses and households affected by the crisis.
In the long term, the health of the economy and banking system remain solid, Sejko said, adding that the liquidity and capital reserves of the Albanian banking sector are high.