Albania’s central bank kept its policy rate steady at 1.0 percent and said its supervisory council judged “that a rise in the policy rate will not resume before the second quarter of 2019,” confirming its guidance from October.
The Bank of Albania, which lowered its rate by 25 basis points in June in response to a sharp rise in the exchange rate of the lek against the euro, added it still expects the country’s economy to return to equilibrium in the second half of next year and inflation to its target in 2020.
“Maintaining the direction and intensity of the monetary stimulus boosts aggregate demand growth, contributing to growth of employment, increases of wages and build-up of domestic inflationary pressures,” Governor Gent Sejko told a press conference.
Sejko added the central bank continued to monitor the exchange rate and was “ready to use the available instruments to prevent the appreciation of the exchange rate to levels that jeopardize the achievement of the inflation target.”
It is the supervisory council’s first policy meeting since October as the November meeting was postponed because the terms of six of its nine members had expired and the parliament had yet to vote in the replacements.
The rate cut in June halted the sharp rise in the lek seen during May and it traded sideways until October before it began rising again. Today the lek was trading at 122.8 to the euro, today, up 8.4 percent this year.
Albania’s inflation rate decelerated for the fifth consecutive month in November to 1.8 percent, well below is target of 3.0 percent, plus/minus 1 percentage point, reflecting the impact of the lek’s rise on higher import prices.
“Our analyses suggest that this effect is expected to be transitory and will not affect the convergence of inflation to the target in the medium term,” Sejko said, adding the expectation of inflation returning to the target in 2020 is supported by the positive performance of the euro area, the stimulative effect of the monetary and financial environment in the country and an expected calming down of the exchange rate appreciation pressures.
However, Sejko added the risks to the inflation forecast are skewed to the downside due to potential external shocks and the speed of an improvement in business climate and lending.
Data suggests that economic activity in Albania trended upward in the second half of this year, supported by accommodative monetary policy, reflecting growth in industrial production and services and expansion of consumption and private investments.
“In balance, the overall context of economic and financial developments in Albania remains positive,” Sejko said.
Albania’s gross domestic product grew by 4.32 percent in the second quarter down from 4.46 percent in the first quarter.
The Bank of Albania issued the following statement by its governor, Gent Sejko:
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