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UPDATE 1-Albania cuts key rate to record level
July 25, 2012 / 2:14 PM / in 5 years

UPDATE 1-Albania cuts key rate to record level

* Albania cuts rate 25 basis points to 4 pct

* Bank trying to stimulate the stalled economy

* Albanian economy contracted 0.2 pct year-on-year in Q1 (Adds details, quotes)

By Benet Koleka

TIRANA, July 25 (Reuters) - Albania’s central bank cut its key interest rate by 25 basis points to a record low 4 percent on Wednesday, trying to boost stalled growth in the Balkan country.

The country of 2.8 million people is feeling the effects of the crisis in neighbouring Greece and Italy, Albania’s main trading partners and home to hundreds of thousands of Albanian migrant workers.

The cut of 25 basis points was the fifth since September.

It followed a 0.2 contraction of gross domestic product in the first quarter of this year compared with the same period in 2012, as industry and construction slumped.

Inflation stood at 2.2 percent year-on-year in June, down 0.8 percent month-on-month.

“Easing of monetary policy would help us meet the inflation target in the medium term,” Central Bank Governor Ardian Fullani told reporters.

“This easing would stimulate economic activity in the country by increasing monetary stimulus to support internal demand,” he said after a meeting of the central bank board.

Under its 2012 budget, the government is seeking GDP growth of 4.3 percent this year, compared with a forecast of 0.5 percent by the International Monetary Fund.

The global economic slowdown, and particularly the debt crisis in Italy and Greece, has seen Albanian growth rates halved to around 3 percent annually in recent years.

Remittances from Albania’s 1 million-strong community of migrant workers, many of them now jobless in Greece and Italy, have dropped, dragging down consumption at home.

Fullani predicted a “slow performance” by the Albanian economy over the rest of 2012, but added:

“The central bank thinks that despite the cyclical situation of the Albanian economy, the medium and long-term perspective of its development remain positive.”

Editing by Matt Robinson. Editing by Jeremy Gaunt.

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