The supervisory board of Albania’s central bank decided on May 29 to keep the base interest rate at the historic low of 3.75% for the fourth consecutive time, after cutting it by 25bps in January, the bank said on its website. The decision is in line with the bank’s objectives to meet the mid-term inflation target, while providing necessary monetary stimulus to support domestic demand.

The rate setters consider that the economic growth continues to develop below its potential, which is the factor contributing for the low level of inflation. In the absence of shocks on the supply side, the annual inflation is expected to remain broadly unchanged from its current level (2.3% in April).

The central bank estimated that economic growth has been low in Q1 2013. It continued to be mainly supported by foreign demand as well as public sector demand. Consumption and private investment remain weak, reflecting uncertainty about the future as well as a slow growth in disposable income.

Referring to fiscal policy, the bank noted that it has been expansionary during the first four months of 2013. Budget expenditure increased by 9.8% y/y in Jan-April due to higher capital spending. At the same time, revenues saw only marginal 0.3% y/y increase. The central bank repeatedly noted that maintaining budgetary discipline in the mid-term is of a key importance for improving the business climate in the country and for bringing down interest rates. Moreover, Albania’s public debt should be reduced in the long-term, while the fiscal rule should be anchored in a credible, effective and transparent way.