Basic interest rate to be reduced

Members of the Observing Council will gather on July 31st, and chances are that they will agree for another reduction of the interest rate, with another 0.25%. This would bring it to the lowest point in history, at 3.5%, an action that seems dictated by the difficult economic conditions of our economy and the domestic financial market.

For months Albania has officially entered in a loan crisis, while the recent data warn a further weakening of the economy. Since July 2011, the politics of Bank of Albania has been oriented on the same position, that of monetary facilitation.

The basic interest rate has decreased several times from the 5.25% level that it was two years ago, to the historical minumum of 3.5%, that is expected this week. This will soften the government’s debt cost, which have fallen in the lowest level of all history. However, the results of this policy have always been almost zero.

Recent observations show that banks are still being strict with the loan conditions, while the demand of the private sector remains low. This final movement of the bank aims to revive the economy and encourage consumption, but it raises another question that is related to the further spaces of the Central Bank to stimulate economy. With the real rates close to zero, it seems that the Bank itself has exhausted all ways to revive the economy from this difficult position.

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