News 31 Jan 13

Albania Slashes Interest Rate to Historic Low

The central bank cut the key benchmark interest rate on Wednesday by 0.25 per cent to a historic low of 3.75 per cent in an effort to kick start the stagnating economy.

Besar Likmeta

“Economic activity remains below potential and sources of growth are unstable,” the central bank governor, Ardian Fullani, said, explaining the latest cut in interests rates.

“This decision aims to reduce the cost of financing and increase credit and investments in the economy,” he added.

Although Albania initially weathered the impact of the global financial crisis relatively well, its recovery to above 3 per cent growth rate in 2011 failed to endure.

A downturn in 2012 reflected the deteriorating situation in the eurozone generally, and the difficult situation in the country's energy sector.

Real GDP growth turned negative in the first quarter of 2012 for the first time since the crisis in 2009. Growth picked up in the second quarter but most expectations remain weak for 2013.

A World Bank report released in December said the country faced the risk of a so-called double-dip recession, with consequent serious rises in unemployment and other risks.

Fullani sounded less dramatic about Albania's prospects. “The banking sector has a healthy balance but continues to be characterized by an increased caution toward backing long-term investments,” he said.

“A growth in production has not affected a general climate of uncertainty, which thwarts consumption and private investments, reducing the demand for credit,” he concluded.  

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