May 8, 2019 / 5:03 PM / 4 months ago

Albanian central bank holds rates, promises stimulus

* Says it will normalize monetary policy carefully

* Sees inflation reaching target in 2021 now

By Benet Koleka

TIRANA, May 8 (Reuters) - Albania’s central bank held its benchmark interest rate at a record-low 1 percent on Wednesday, promising stimulus over the medium term and to normalise policy carefully.

Governor Gent Sejko said after a central bank Supervisory Board meeting that it also kept the one-day deposit and lending rates unchanged at 0.1 percent and 1.9 percent respectively.

Sejko added that the Supervisory Board, reviewing its base scenario and balance of risks, believed “normalisation of monetary policy will be very careful”.

To spur lending and growth following the global financial and economic crisis, the central bank cut its benchmark rate from 6.25 percent at end-2008 to an eventual 1 percent.

“Whatever happens, the intensity of stimulus will be adapted to the speed and stability of the improvement of economic activity while the central bank will stand ready to react to possible shocks,” Sejko told reporters.

Annual inflation in the Balkan country, which aspires to join the European Union, was 1.6 percent in the first quarter of 2019, down from 1.83 in the last quarter of 2018, reflecting lower prices of rent, water, services and agricultural produce.

“From a macroeconomic view, the inflation slowdown reflects the fuller transmission of the strengthening of the exchange rate, the slowdown of inflation in partner economies and the effect of supply shocks on agricultural prices,” Sejko said.

A continuing positive growth trend after a 4.1 percent expansion in 2018 had bolstered internal inflationary pressure but those from outside Albania were weakening, Sejko said.

Over the medium term, Sejko said the expansion of economic activity would bring more employment, use production capacities much better and raise wages and production costs more quickly.

“These developments will help inflation return to the target (of 3 percent annually) at the beginning of 2021,” Sejko said.

Having earlier forecast this would happen in the second half of 2020, unlike the International Monetary Fund’s (IMF) forecast for 2021, Sejko said they had revised it mostly because of concerns about the recent economic slowdown internationally. (Reporting by Benet Koleka)

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