August 1, 2018 / 4:37 PM / a year ago

Albanian central bank to keep rates low, currency weak

* Albania central bank holds rate at record low

* Promised stimulus until April 2019

* Bank will keep buying euros to stem lek rise

By Benet Koleka

TIRANA, Aug 1 (Reuters) - Albania’s central bank held its benchmark interest rate at a record low 1 percent on Wednesday, and said again that it would keep rates low until April next year and buy euros to keep a strong lek from jeopardising its goal of 3 percent inflation.

Governor Gent Sejko said the board had also kept the interest rates on one-day deposits and lending unchanged at 0.1 percent and 1.9 percent respectively.

“Monetary stimulus is consistent with the consolidation of fiscal policy and remains a necessary precondition for the return of inflation to its goal during 2020,” Sejko said.

The bank forecast its inflation goal would be achieved because of “the economy reaching its equilibrium in the first half of 2019” and said “disinflation pressures from the exchange rate appreciation” would be temporary.

Average annual inflation rose to 2.2 percent in the second quarter from 1.9 percent in January-March, and was 2.4 percent in June. Albania expects GDP growth of 4 percent in 2018.

Sejko said the economy “maintained its positive development trend” in April-June after growing 4.45 percent in Q1.

“Our expectations for the future remain positive. However, this calls for maintaining a stimulative monetary policy while the balance of risks remains on the downside,” he added.

“The Board believes that normalizing interest rates in the domestic financial market will not begin before the second quarter of 2019.”

The central bank had cut its main rate by quarter of a percentage point in June, taking it to 1 percent after a decline from 6.25 percent when the global financial crisis began to bite a decade ago.

It also announced then that it would buy euros to weaken the lek currency from 124.17 per euro — its strongest level in 10 years — and so stop currency strength from knocking inflation off its path towards the bank’s target.

Sejko said the bank’s intervention had calmed the market and checked the lek after its rapid April-May appreciation, but that high inflows from tourists and migrant workers returning home on holiday meant it was still “unbalanced”.

On Wednesday one euro bought 125.58 leks, 0.18 percent more than on Tuesday, marking the Albanian currency’s biggest daily loss since the bank started buying euros in mid-June.

“The Board decided to continue its programme of purchases in the hard currency market, aiming to stop the rapid appreciation of the exchange rate,” Sejko added. (Reporting By Benet Koleka; Editing by Catherine Evans)

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