March 25, 2020 / 1:21 PM / in 16 days

UPDATE 1-Albanian cuts interest rates to offset coronavirus impact

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By Benet Koleka

TIRANA, March 25 (Reuters) - Albania’s central bank cut its benchmark interest rate to a record-low 0.5% and its one-day lending rate to 0.9% on Wednesday to help lending in the economy, hit by the coronavirus outbreak and measures to contain it.

Since detecting its first coronavirus case early in March, Albania has forbidden internal movement and on Monday imposed a 16-hour-a-day curfew, with only selected industries allowed to continue working.

Governor Gent Sejko said in his scheduled news conference, which was broadcast on Facebook, that the central bank took the decision “to soothe the effects of the COVID-19 pandemic on the economic and financial health of the country”.

As most people in Albania use cash, he said the central bank had already increased its capacity to supply the economy with banknotes and ensure normal functioning of electronic payments.

“We think it was a necessary measure to cut borrowing costs, lower the cost of servicing existing debt and to help ease the circulation of money to business and families,” Sejko said.

The one-day deposit interest rate remains at 0.1%, he added.

Albania’s finance ministry has predicted the epidemic will cut gross domestic product growth to 2% this year rather than the 4.1% previously forecast.

It expects the budget deficit to grow to 3.9% from 2.2% and a 4 percentage point increase in public debt 68.8% of GDP. Albania has earmarked $370 million to cushion the health sector, business and the needy from the impact of the coronavirus.

Sejko said the central bank would inject unlimited liquidity into the banking sector and ensure the normal functioning of the electronic payments system.

It stood ready to “use all its operational tools and regulatory options to minimise the consequences of the pandemic for the Albanian economy and financial sector”, he added.

Repeating his earlier view that Albania was in good economic and financial health, with high liquidity reserves and capital, Sejko said monetary, regulatory and institutional measures would stay in place for as long as needed.

The central bank and the government have agreed to postpone until the end of May all loan repayments by businesses and individuals facing difficulties due to the coronavirus outbreak, which has killed five people and infected 146 in Albania. (Reporting by Benet Koleka; Editing by Catherine Evans)

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