The Bank of Albania does not change the base rate

2024-08-07 17:32:00, Ekonomi CNA

The Bank of Albania does not change the base rate

Governor of the Bank of Albania, Gent Sejko

The Supervisory Council of the Bank of Albania has decided to keep the base rate unchanged at 3%, since in the previous meeting it changed the rate for the first time in three years, lowering the rate by 0.25 percentage points.

The governor of the Bank of Albania, Gent Sejko, said at the press conference after the decision was made, that the economic and monetary developments of the first half of the year were in line with the bank's expectations.

"The volume of economic activity, employment and wages have been increasing, while inflation marked a significant decrease. This progress suggests that the Albanian economy is leaving behind the consequences of the blow we suffered from the increase in prices in the international markets during the year 2022-2023".

"The update of our forecasts suggests that the positive development trends will continue in the future.

In particular, the Albanian economy is expected to continue growing in the medium term, at stable rates and close to potential, while inflation is expected to stay close to current levels for the remainder of the year and return to target during the first half of next year ", said Sejko.

Sejko clarified the reasons that motivated today's monetary policy decision, as follows:

"Consumer price inflation decreased during the second quarter, staying close to the average level of 2.1%. This performance was dictated almost entirely by the fall in inflation of food items, and in particular of fruits and vegetables, while the inflation of other basket items was generally stable, albeit with a slight downward trend.

From the macroeconomic point of view, the drop in inflation during the second quarter has reflected the rapid reduction of imported inflation, while domestic inflationary pressures appear more stable.

The decline in imported inflation has reflected both the impact of the strengthening exchange rate and the decline in inflation in our trading partners. In particular, the rapid deceleration of food inflation in the country has paralleled a similar development in international markets, suggesting that this development reflects a positive supply shock.

On the other hand, the sustainability of internal inflationary pressures is supported by both the solid demand for goods and services, as well as the relatively rapid growth of wages and production costs.

According to INSTAT data, the Albanian economy grew by 3.6% during the first quarter of the year. The expansion of economic activity reflected the increase in family consumption, private sector investments and the increase in the export of services. On the other hand, the export of goods recorded a decline, while the fiscal policy continued to follow a course of consolidation.

This demand profile has led to the expansion of activity in the construction and service sectors, while the industry and agriculture sectors recorded a decline. The data of the second quarter suggest a similar performance to those of the first quarter.

Our analyzes suggest that the Albanian economy continues to remain in a positive phase of the business cycle. This progress is reflected in the high levels of capacity utilization of businesses, as well as in the observed shortages in the labor market.

In particular, the expansion of demand for goods and services has been accompanied by the continuous growth of employment and wages in the private sector. Although official data on the labor market are not yet available, indirect information suggests that the positive trends recorded in the labor market during the past year have continued during the first half of the current year.

The increase in wages in the private sector generates more income for Albanian families, but it continues to exert pressure on production costs and consumer prices.

From the macroeconomic point of view, the expansion of activity has been supported by the healthy balances of the private sector, consumer and business confidence for the future, the stimulating financial environment, as well as the continuation of the increasing trend of income from tourism.

In this context, the prudent monetary policy followed during the past two years has been successful.

The normalization of the stance of monetary policy has enabled a better balancing of demand and supply in the economy, as well as helped to control inflation expectations. Also, the care we have shown in the reaction of the monetary policy, has maintained an accommodative financial environment.

As a result, financial markets continue to be calm. They are characterized by abundant liquidity, low risk premiums and a good credit offer, both in terms of lending costs and the banks' approach to it. Also, the exchange rate has been relatively stable during the last months, reflecting - among other things - a higher level of currency purchases in the market by the Bank of Albania.

Credit to the private sector continued to have a positive trend in the second quarter. The rate of credit growth has been increasing, registering a level of 14.6% in June.

Credit expansion continues to be supported - to the greatest extent - by the rapid growth of the loan portfolio in Lek, reflecting the low level of interest rates.

Also, credit expansion continues to have a broad base, covering the needs of businesses and families, both for investments and for consumption and working capital. At the same time, the loan portfolio continues to have a good quality, as evidenced by the low levels of the NPL indicator.

Our outlook for the future remains positive. Economic activity in the country is expected to continue to grow in the medium term, driven by further expansion of domestic and foreign demand. In parallel, employment and wages are expected to increase, increasing the well-being of families.

On the other hand, inflation is expected to fluctuate in the lower direction of our target during the second half of the year and gradually return to the target during the first half of next year.

The Supervisory Board notes that the overall balance of medium-term pressures is gradually approaching our inflation target.

In this context, future monetary policy decisions will continue to be conditioned by new information, and in particular by analyzes and assessments of the progress of internal inflationary pressures. These decisions will always be in accordance with our objective of price stability, as well as consistent with the direction of the fiscal policy and the course of the exchange rate", said Sejko.

Problem loans, Sejko: We handled them based on the legal framework

Sejko said that taking the lead from the recent discussions on the situation created in a special segment of the financial system, that of dealing with problem loans, the Supervisory Council finds it appropriate to emphasize the following.

"The Bank of Albania is a constitutional institution, mandated by law with an essential mission for the sustainable development of the country: that of maintaining price stability and supporting financial stability. All the policy-making, regulatory and supervisory activity of the institution has been and remains oriented exclusively towards the fulfillment of this mission.

The Supervisory Council of the Bank of Albania has carried out its duty with responsibility and professionalism, as the highest decision-making and supervisory body of the Bank of Albania.

He has always taken decisions in the interest of the public good of the country and society, he has carefully monitored and in accordance with the legal mandate the implementation of assigned duties, as well as he has regularly familiarized himself with the reports of the Bank's organizational units, including those of banking supervision.

As a whole, the Supervisory Council assesses that the activity of the Bank of Albania has been in accordance with the legal and regulatory basis and has served the fulfillment of its mission in line with the needs of the country's economic development.

The Bank of Albania and the Supervisory Council remain ready to support in the future all the necessary legal reforms to address the problems that have emerged from the developments of the problem loans treatment market, as well as to undertake with priority any necessary regulatory initiative , which is within its mandate and competence", said the governor.