UPDATE 1-Albania central bank urges more lending after rate cut

Fri May 30, 2014 1:21pm EDT

Related Topics

* Albania central bank cuts key rate to record low

* Governor says cut meant to bring inflation to 3 pct

* Fullani urges banks to lend more (Updates with governor's news conference)

By Benet Koleka

TIRANA, May 30 (Reuters) - Albania's central bank cut its benchmark rate by 25 basis points to a record low of 2.5 pct on Friday, to help inflation get to its 3 percent target, and urged banks to lend more.

The central bank has cut its policy rate by a total of 275 basis points since mid-2011, but the moves have done little to revive lending. The sluggish Albanian economy is expected to grow 2.1 percent in 2014 after just 0.44 percent growth in 2013.

"This further easing of monetary conditions is expected to help a quicker return of inflation to the level of 3 percent targeted by the Bank of Albania," Central Bank Governor Ardian Fullani told reporters after its Supervisory Board's decision.

"This move serves to stimulate consumption and domestic investments, aiming at a fuller use of the productive capacities of the economy and a quicker return of inflation to the target."

Fullani said year-on-year inflation was 1.7 percent in April, recording a slight drop compared with the cumulative average of the first quarter of 2014.

Data showed, Fullani said, the economy saw a "positive growth" in the first months of 2014 due to internal private demand. The contribution of the public sector was "negative".

Over the first four months of 2014, public-sector revenue grew 9.1 percent year-on-year. Spending fell 5.9 percent, contributing to a 73.1 percent smaller budget deficit than a year ago, he said.

Fullani said the bank has backed the eight-month Socialist government of Prime Minister Edi Rama's consolidation of fiscal policy because it reduced risks to the economy.

The bank foresaw low inflationary pressures in coming quarters as a result of weak aggregate demand and inflation's tendency of to drop in Albania's trading partners Italy and Greece.

"Forecasting a low level of inflation in the coming period has obliged us to ease monetary policy over the last quarters," Fullani added.

The rate cuts had been reflected in the interbank market, deposits, most of securities' yields and even lending rates. The latter remained high because of greater credit risks and other risks related to long-term investments.

Lending to the private sector shrank by 2.4 percent in March from the same period last year, reflecting both low demand from businesses and individuals and conservative policies at banks on interest rates and other conditions.

"In this direction, the Bank of Albania thinks the banking system has enough space and should adopt a more just behaviour towards lending to the Albanian economy," Fullani said.

"The banking system should be more active in lending because the country's sustainable growth is a precondition for the sustainable growth of the banking system itself," he added. (Reporting by Benet Koleka, editing by Mark Heinrich/Larry King)

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