March 28, 2018 / 5:02 PM / a year ago

Albanian holds rate, vows stimulus beyond 2018

TIRANA, March 28 (Reuters) - Albania’s central bank kept its benchmark rate on hold at a record low 1.25 percent on Wednesday and said its stimulus will not weaken before October 2018 to help inflation to its target.

Its supervisory board also held interest rates on one-day deposits steady at 0.25 percent and lending at 2.25 percent, Central Bank governor Gent Sejko told reporters.

The bank has brought the rate down to the current historical low from 6.25 percent at the end of 2008 to stimulate lending and help inflation edge up to its target of 3 percent.

“The Supervisory Board re-confirms the monetary stimulus will not subside before the fourth quarter of 2018,” Sejko said.

“Beyond that, monetary policy will continue to remain stimulative along the medium-term to secure the stable return of inflation to its target,” he added.

Reflecting higher prices of food, water and rent, inflation rose lightly in the first quarter of 2018, by 1.7 percent and 2.1 percent annually in January and February, Sejko said.

Inflation was below the bank’s target of 3 percent because productive capacities were not fully used, foreign inflationary pressures were weak and the inflation expectations of businesses were below the bank’s target, Sejko said.

However, Sejko said their stalling effect would be gradually reduced over the medium term in the Balkan country.

“In line with these evaluations, annual inflation is seen fluctuating around the level of 2.2 percent in 2018 and returning to our target (of 3 percent) in 2019,” Sejko said.

Albania’s gross domestic product is expected by the International Monetary Fund to grow by 3.7 percent in 2018 and the economy to expand “more over the medium-term”, Sejko said.

Sejko said the board thought the positive economic cycle should be used to intensify structural reforms to boost the economy’s growth rate and strengthen its resistance to shocks.

“These reforms should especially aim to improve the business climate, raise efficiency and competition and expand the country’s productive potential.” (Reporting By Benet Koleka, Editing by Mark Heinrich)

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