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