Signals for a further interest rate cut

The Governor had given signals for a possible cut of interest rate in the press conference of October 26th, while unofficial sources said yesterday that now this is a concrete discussion.

“Without touching the stability of prices and other external economic balances, the improvements of the Eurozone situation in the last days and the confirmation of our expectations for the economic progress in the country might leave space for a further facilitation of the monetary policy”, Fullani declared.

The Eurozone crisis seems stable after EU wrote down half of the Greek debt. This is expected to create stability even for Albania.

This September, the basic rate of the Albanian Lek fell to 5% from 5.25%. Albania has never experimented with lower interests. This will enable the government to save on the domestic debt interests and oblige banks to look for creditors. This would make ALL less attractive, compared to Euro.

The difference of the interest rates between ALL and EUR is very high, compared to some years ago. This shows that t0he Albanian Bank has enough space for further cuts of the interest rate, without damaging its credibility. Historical data for the interest of 1 year term deposits in ALL and EUR show that the interests make parallel moves.

Before the crisis of 2007 and 2008, the ALL interests were 2% higher than those of the Euro. In the last two years, the interest rates of ALL are in average 2.8 higher than the interest offered for the annual deposits in Euro.

The Albanian economy has been suffering low consumption levels in the last year, which has caused a considerable fall of sensitive prices, especially for domestic agricultural goods and clothes. But Bank of Albania says that the low crediting levels of the last months is not due to the banks desire to release loans, as much as the Albanians’ refusal to demand it.

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