Albania holds rates, warns on deficit, debt levels

Tue Apr 30, 2013 12:17pm EDT

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* Albania central bank keeps rates unchanged

* Central bank warns against harmful deficit, debt levels

By Benet Koleka

TIRANA, April 30 (Reuters) - Albania's central bank kept its benchmark interest rate unchanged on Tuesday at a record low of 3.75 percent and urged the government to contain the budget deficit and public debt.

Central Bank Governor Ardian Fullani said the rate offered the right stimulus to internal demand and would help the bank reach its 3 percent inflation target in the medium-term.

"Weak inflationary pressures require the central bank to continue its stimulative monetary policy," Fullani told reporters.

Consumer prices grew on average by 2.5 percent in the first quarter of this year, Fullani said. Food prices accounted for 90 percent of total inflation in Albania, one of Europe's poorest countries.

Fullani said the government had maintained its fiscal stimulus during the first quarter. The budget deficit grew by 41.5 percent since the same period last year, he added, without saying what proportion of GDP the shortfall now stood at.

"The Bank of Albania appeals once again for the safeguarding of fiscal balances and the control of the budget deficit and public debt at affordable and non-harmful levels for the Albanian economy," Fullani said.

Opting for fiscal stimulus to boost faltering growth, the government has lifted a self-imposed public debt cap of 60 percent of GDP and now the debt is hovering around 63 percent.

"In our opinion, the medium-term priority of fiscal policy should be to preserve budget discipline," Fullani said.

Albania holds parliamentary elections on June 23, with the opposition Socialist Party challenging the eight-year tenure of Prime Minister Sali Berisha's Democrats.

Albania's economy had its most difficult year in 2012 since the onset of the euro zone crisis. Gross domestic product grew by just 1.6 percent, far less than rates of six percent recorded early this century.

(Reporting By Benet Koleka, editing by Stephen Nisbet)

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