Albania c.bank holds rates and vows to maintain stimulus

Wed Oct 30, 2013 2:59pm EDT

Related Topics

* Rates remain at record low

* Governor vows to keep easing policy while inflation is low

* Says insecurity and bank conservatism hinder stimulus

TIRANA, Oct 30 (Reuters) - Albania's central bank held its benchmark rate at the record low of 3.5 percent on Wednesday and vowed to keep easing monetary policy, which it said had been hampered by lack of confidence and conservative lending policies by banks.

Central bank governor Ardian Fullani said inflationary pressures from "the real and financial sectors of the economy are and will continue to remain low".

"These circumstances require us to preserve the stimulus of monetary policy even in the coming period," Fullani told reporters after the bank supervisory board's monthly meeting.

Average annual inflation maintained its slowing trend, runing at 1.5 percent in the third quarter, Fullani said. The central bank targets end-year inflation of around 3 percent.

Gross domestic product grew 1.1 percent in the second quarter and growth appeared weak in the third.

"Consumption and private sector investments had a weak performance while foreign demand has continued to be reined in by the economic situation of our trade partners," he added.

Growth rates ran at about 6 percent for a decade until 2009 but fell by half when recession hit Italy and Greece, Albania's neighbours, trade partners, investors and bankers.

"The insecurity ... has been reflected in a low readiness to spend and low demand for loans. This insecurity has hindered the transmission of the monetary stimulus in the economy," Fullani said.

The governor also blamed what he termed conservative policies by the banks in enforcing tight lending conditions.

Lending to the private sector, 80 percent of the economy, fell 2 percent year-on-year at end-August.

The bank eased the base rate by 25 basis points in July ahead of what it saw as a contained fiscal policy in the second half of 2013.

That followed cuts totalling 150 basis points between September 2011 and January this year, intended to stimulate lending in the Albanian lek currency, which accounts for about 35 percent of all lending. The rest is in other currencies. (Reporting by Benet Koleka; Editing by Andrew Roche)

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