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Albania’s c-bank keeps key rate on hold at 1%

Albania’s c-bank keeps key rate on hold at 1% Bank of Albania/All rights reserved.

TIRANA (Albania), May 8 (SeeNews) – Albania's central bank said on Wednesday it has decided to keep its key policy rate unchanged at record low 1.0%, it said.

The interest rate corridor in the interbank money market will also be kept unchanged, set at 0.10% for the overnight deposit rate and at 1.90% for the overnight lending rate, 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 early June 2018, lowering it by 25 basis points to 1.0% amid strong appreciation of the lek currency which increased downside pressure on inflation.

Annual inflation averaged 1.6% in the first quarter of 2019, slowing down from the previous quarter, central bank governor Gent Sejko said in the statement.

"Our accommodative monetary policy has enabled creating favourable financing conditions," Sejko said, adding that the domestic financial market operates in a calm environment, with low interest rates, low risk premiums and a stabilisation trend of the exchange rate.

According to data from Albania's statistical office INSTAT, economic activity expanded by 4.1% last year, underpinned by private sector demand which benefited from employment growth, improvement of confidence and favourable financing conditions, Sejko added.

“Judging from the current development trends and the balance of underlying factors, the Bank of Albania deems that the medium-term outlook is positive,” the central bank governor said.

The expansion of the economic activity will spur further employment growth and will contribute to faster increase in wages and production costs. “These developments will enable the return of inflation to target at the beginning of 2021.”

According to Sejko, downside risks dominate the forecasting horizon.

“They are related mostly to uncertainties surrounding the external environment, duration and impact from the exchange rate appreciation on inflation, stability and recovery of bank credit and, lastly, the tense political situation at home.”