March 29, 2017 / 5:05 PM / a year ago

Albanian keeps rates flat, signals possible tightening after October

TIRANA, March 29 (Reuters) - Albania’s central bank held its main interest rate at a record low of 1.25 percent on Wednesday but signalled a possible tightening of monetary policy after October when it expects the economy to improve.

Speaking after the bank’s board meeting, governor Gent Sejko said they had also kept unchanged the one-day deposit rate at 0.25 percent and the one-day lending rate at 2.25 percent.

Sejko said the board, which has cut the main rate from 6.25 percent since the end of 2008, believed there was no need to reduce monetary stimulus before the third quarter of 2017.

“Later (beyond October), the intensity of monetary stimulus will be re-adjusted to respond to an expected trend of improvement in the economy,” Sejko told a news conference.

According to the bank’s base forecast, inflationary pressures will strengthen as the economy moves closer to its potential.

“Annual inflation is expected to fluctuate around 2.4 percent in 2017 and return to our goal (of 3 percent) in 2018,” he said.

The government and the International Monetary Fund forecast Albania’s gross domestic product to grow by 3.7 percent in 2017, up from 3.4 percent in 2016. The bank predicts growth of 3.3 percent for 2016. The economy grew 2.6 percent in 2015.

The relaxed monetary policy helped lending in the Albanian lek currency to rise by 11 percent year-on-year in January, compensating for a reduction of lending in hard currency. (Reporting By Benet Koleka, Editing by Gareth Jones)

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