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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% Author: Bank of Albania. Licence: All Rights Reserved.

TIRANA (Albania), November 7 (SeeNews) - Albania's central bank said on Wednesday it has decided to keep its key policy rate unchanged at a record low 1.0%.

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, 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 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.

Economic growth continued to slow down in the second quarter, in line with the performance observed during the previous quarter, while inflation remained low and below the target in the third quarter, the central bank governor Gent Sejko said in the statement.

Inflation stood at an average 1.4% in the third quarter, unchanged from the previous quarter, the governor noted.

According to country’s statistics office INSTAT, gross domestic product (GDP) increased by 2.3% year-on-year during the second quarter. Economic growth was supported by the expansion of public and private consumption, while net exports and investment declined.

As in the first quarter, the slowdown of GDP growth reflects the decline in electricity production and exports, the transitional effects of the closure of gambling activities, and the final phase of works on the Trans Adriatic Pipeline (TAP) project, Sejko said, adding that these factors will remain in place  in the second half of the year.

According to the central bank governor, the pace of economic growth in the second half of the year is expected to be comparable to the first half. However, economic growth is expected to accelerate over the next two years, enabling inflation to return to its target, Sejko said, adding that, considering these circumstances, the current bank’s monetary policy is considered to be appropriate.

According to Sejko, downside risks remain present. “These risks stem both from the external environment, where the euro area economy is slowing, and from the internal, where political tension continues to induce uncertainty,” Sejko noted.

In light of recent developments in the country's EU integration process, the Bank of Albania finds it appropriate to emphasize the need to maintain the current anchors of economic policy and to further accelerate structural reforms, the government said.

Based on bank’s projections, inflation is expected to converge to the bank’s target in the second half of 2021.