February 7, 2018 / 4:53 PM / a year ago

Albania central bank holds rate, promises stimulus

TIRANA, Feb 7 (Reuters) - Albania’s central bank held its benchmark interest rate at the record low of 1.25 percent on Wednesday, and its governor promised to pursue a stimulative monetary policy until October.

The bank also held rates for one-day deposits at 0.25 percent and one day-lending at 2.25 percent.

“First, we reconfirm the intensity of monetary stimulus will not diminish before the fourth quarter of 2018,” Governor Gent Sejko said.

“Beyond that, monetary policy is expected to keep being stimulative along the whole medium term, to secure the stable convergence of inflation to its goal,” he added.

Inflation rose slightly in the fourth quarter of 2017, mostly due to the housing sector, revealing the short-lived nature of supply shocks that had caused it to fall earlier, Sejko said.

The bank sees now inflation returning to its goal of 3 percent in mid-2019 thanks to “further rise of aggregate demand and more full usage of production capacities”.

Sejko also said “the improvement of the external environment and favourable financing will soften a number of specific shocks in certain sectors and the diminishing fiscal stimulus in 2018”.

With risks in the bank’s forecasts seen low, Sejko called on the government to look beyond the economic cycle and keep rigorously implementing structural reforms to speed up the rate of growth. Albania expects GDP growth of 4 percent in 2018.

“These reforms should contribute to raising efficiency, expanding the country’s productive potential and strengthening the economy to resist possible hits,” Sejko added.

The governor said the bank had adopted measures to reduce the use of the euro, by making it “more expensive and less favourable”, to help Albania maintain its own monetary policy.

A candidate to eventually join the EU, Albania allows the use of the euro along its Lek currency, but has seen the euro being used at very high levels in both deposits and lending. (Reporting by Benet Koleka; Editing by Peter Graff)

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