The supervisory board of Albania’s central bank decided on December 16 to cut the base interest rate by 0.25pps to a new historic low of 3% after a similar cut in November, the bank said in a statement on its website. The monetary easing reflects the bank’s expectations for weak inflationary pressures in the mid-term period.
Aggregate demand and economic growth is projected to remain below potential, followed by a slow increase of production costs and consumer prices. Similarly, inflationary pressures from the foreign market is expected to be low and falling.
The central bank’s decision creates more favourable conditions for meeting the inflation target in the medium term, the bank said. The central bankers consider that the negative output gap continues to determine the low inflation environment. In the absence of unforeseen shocks, inflation is forecast to fluctuate at low levels during the next quarter.
The bank confirmed its previous projections for weak economic growth in H2 2013. However, the growth is seen lower than previously expected, mainly due to waning external demand. At the same time, consumption and private investment remain weak, reflecting uncertainties about the future, not the full utilisation of capacity, low consumer confidence as well as financial constrains.
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