TIRANA (Albania), October 2 (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, 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.
The latest economic and financial data was generally in line bank’s expectations, central bank governor Gent Sejko said in the statement.
“Inflation registered a slight increase in July and August, the economic growth rate continued to reflect the effect of short-term shocks, while financial conditions remained stimulating,” the governor noted.
Despite supply shocks, the trend of development of the Albanian economy remains positive, Sejko said, adding that this performance is illustrated by the fuller utilisation of productive capacities, increased employment and wages, and accelerated lending.
Inflation stood at an average 1.5% in July - August, up from 1.4% in the second quarter, he noted.
According to country’s statistics office INSTAT, gross domestic product (GDP) increased by 2.3% during the second quarter. INSTAT has revised upward its growth rate for the first quarter, reassessing it at 2.4%, from 2.21% estimated in July.
Economic growth in the second quarter was driven by the expansion of activity in the services and agriculture sectors, while the industry and construction sectors declined, Sejko said. Economic activity reflected growing consumption, but investments and the foreign trade balance had a negative effect, he added.
“Preliminary data available for the third quarter suggest a similar performance to the previous quarter,” Sejko noted.
The slowdown in the growth rate in the first half of the year mainly reflects the reduction of electricity production and partly the effect of the completion of large energy projects, he commented.
According to the central bank governor, downside risks are further strengthened. “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.
“The Bank of Albania calls for the continuation and acceleration of structural reforms, as the main instrument of productivity growth, expansion of economic potential, increased resistance to shocks, and convergence with European Union standards,” the governor said.
Based on bank’s projections, inflation is expected to converge to the bank’s target in the second half of 2021.