Albanian central bank keeps key rate at record-low of 2.5%

By bne IntelliNews September 25, 2014

The supervisory council of Albania's central bank decided on September 24 to keep the base interest rate unchanged at the historic low of 2.50% for the third month in a row, after a 0.25pps cut in May, the bank said in a statement on its website. The council believes that the monetary easing will provide adequate monetary conditions that enable meeting the mid-term inflation target, while providing necessary stimulus for the economy.

The central bankers agreed that low inflationary pressure, from both the demand and supply side, continue to determine the low CPI rates. The negative output gap and the low utilisation capacity continue to generate pressures on the wage growth and production costs. In addition, imported inflation has been on a downward pace due to low inflation rates in the country's main trading partners, which has also contributed for the low inflation environment in the country.

According to the central bank’s assessment, the economic growth has been driven by the better performance of domestic private demand. Private consumption and investments edged up, reflecting the improved confidence of households and businesses, better credit conditions in financial markets, and stronger balance sheets in the economy.

Despite this, the performance of private consumption and investments performance remains weak, contingent on sustainable improvements in the labour market, a better performance of the global economy, and solid growth of funding resources, including foreign direct investments and bank lending, the bank said.

The Albanian economy is expected to grow gradually towards its potential in the medium term, thus contributing to the inflation's return to target. Finally, the Supervisory Council noted that the stable return of inflation to the target will require keeping the key interest rate low for several quarters ahead.

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