Albanian central bank holds rates, to ease them if needed

TIRANA, Aug 5 (Reuters) - Albania’s central bank held its benchmark rate at a record low of 0.5 % on Wednesday but said it would ease them further to avert the effects of any escalated measures to contain the coronavirus or if the stimulus fails to impact the economy.

Governor Gent Sejko told reporters after the bank’s board meeting it had also kept interest rates on hold on one-day deposits and lending at respectively 0.1% and 0.9%.

Sejko added the current monetary conditions offered the right stimulus to spur growth and help inflation hit the bank’s target of 3% annual inflation in 2022.

“However, an escalation of (coronavirus) shocks or the manifestation of difficulties in transmitting the monetary policy would require a bigger monetary stimulus,” Sejko said.

He mentioned the persistence of the pandemic and the re-introduction of measures of social distancing as one of the potential dangers that would force the bank to cut rates.

Albania reported 182 deaths and 5,889 cases of the new coronavirus on Wednesday, about six times more than in early June when it relaxed one of the toughest lockdowns in Europe.

The bank might also cut the rates further if interest rates and financing costs for the private sector rose, lending conditions worsened or financial indicators fluctuated strongly.

After the economy contracted by 2.5% in the first quarter, Sejko said indirect data suggested “economic activity would suffer a visibly much stronger fall in the second quarter”.

The economic downturn will cause lower employment and higher unemployment, a widening of the current account deficit and an increase of the public debt in 2020, Sejko said.

“In our base scenario, economic activity is expected to bottom out in the second quarter, continue to remain in negative territory in the next two quarters and return to growth in 2021,” Sejko said. (Reporting by Benet Koleka; editing by David Evans)