Low interest rate reduction

Within the last months, the Central Bank has reduced the interest rate with four times, bringing it to 4.25%. The Bank hoped that this instrument would function for encouraging the public consumption through loans. But this doesn’t seem to have worked. This fact has also been confirmed by the Central Bank in the last report of the monetary politics for the first trimester of this year.

But which are the causes?

The Central Bank says in a controlled language that this has happened since the effect of the interest rate that demands more time to be seen, and that the financial markets are still facing the high dangers of the crisis.

However, future analysis show that the main cause that has not allowed the loans to be reduced, is the relation between the government and the banks. The government has increased its loans in the domestic market, due to the exaggerated operative expenses, by increasing the deficit and by keeping the main burder of the blame, while the banks are hesitating to give money, being under the pressure of the EU for improving the balances. This has made the interest rates of the treasury bonds to grow, stopping this way the fall of loans interests for the private sector.

Although the Central Bank admits that the average interest of loans in ALL is lower than one year ago, the results doesn’t fully reflect the recent bank decision for reducing the basic norm.

The Central Bank explains this with another reason. According to them, the second level banks have tightened up the loan conditions, since they are still unsecure for the economic progress of our country and about the international crisis. Being alone in front of these two powerful actors, the government and the private banks, all the Bank of Albania can do now is just to wait and hope.

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