October 2, 2019 / 5:08 PM / 21 days ago

Albanian central bank holds rates, could ease if needed

TIRANA, Oct 2 (Reuters) - Albania’s central bank held its benchmark rate at the record low of 1% on Wednesday, repeating that its gradual normalisation of monetary policy would not start before April and it might ease it further should risks crop up.

Governor Gent Sejko also told reporters the Supervisory Board had kept unchanged the bank’s one-day deposit and lending rates respectively at 0.10% and 1.90%.

Having brought the rate to its lowest level, down from 6.5% in 2008, to spur lending and the economy hit by the global financial and economic crisis, Sejko has mentioned normalising policy, but also said there would be more stimulus if needed.

Under its base scenario, Sejko said the bank would provide stimulus over the medium term and normalise policy “very gradually”, making sure it would not happen before April.

But the slowdown of the euro zone’s economy - most of Albania’s trade is with Europe - and the insecurities stemming from the polarised political situation at home following the opposition’s boycott of parliament and possible protest might pose risks.

“The Supervisory Board thinks the surfacing of risk shocks might require an easing of the monetary policy,” Sejko said.

Inflation edged higher at 1.5% annually in July and August, compared with 1.4% in the second quarter, much below the bank’s target of 3%, which Sejko said would be hit in the second half of 2021.

The economy grew 2.31% in the second quarter, about half the rate growth of last year and around half the rate forecast for this year, mainly due to lower electricity exports and the approaching end of the construction of the Trans Adriatic Pipeline.

“The Bank of Albania expects these supply shocks to be temporary,” Sejko said, adding: “Their effect will be visible in the rate of growth for the year 2019.”

“The base scenario of the Bank of Albania expects the economy to keep growing over the medium term. Overcoming the effect of the supply shocks will be followed by an acceleration of the rates of growth in the next two years,” Sejko said.

The economy would expand thanks to favourable financing conditions and more lending, as well as the healthy balance sheets of the private sector and an improvement in confidence, Sejko added. (Reporting by Benet Koleka; Editing by Alison Williams)

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