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IBNA Analysis/Economic developments and foreign effects at the focus of the Governor of BoA, Gent Sejko

IBNA Analysis/Economic developments and foreign effects at the focus of the Governor of BoA, Gent Sejko
Tirana, 8 July 2016/Independent Balkan News Agency

By Edison Kurani

The Supervisory Council of the Bank of Albania reviewed and approved the Interim Monetary Policy Report, and in conclusion to the discussions on the most recent economic and monetary developments and the expected outlook, decided to leave the base interest rate unchanged at 1.25%. The Supervisory Council estimates that in the absence of unpredicted shocks the monetary stimulus will not weaken during the whole of 2016.

Additionally, the Supervisory Council decided to not alter the interest rate corridor in the interbank market, assigned at 0.25% for the overnight deposit interest rate and at 2.25% for the overnight lending rate.

The Supervisory Council confirms that in absence of negative shocks, the medium-term development perspective of Albania remains positive.

Governor of the Bank of Albania, Gent Sejko analyzes the recent decisions of the institution that he leads.

Mr. Sejko says that  the new available data show that the Albanian economy and its monetary indicators have developed in line with expectations. In line with these forecasts, economic activity and inflation have increased.

Mr. Sejko suggests that the Albanian economy increased over the first half of 2016. “The expansion of consumption and private investments has supported this growth. The worsened external trade balance and the budget surplus, established over the first half of year, have acted on the opposite direction”.

However, business and consumer confidence remains volatile, thus showing the still unconsolidated position of the private domestic demand as an engine of the economic growth.

Governor Sejko also identifies other problems: “The weak economic performance of our trading partners, the fall of price in some of our traditional products of exports, and the high bill of import reflecting some of the foreign direct investments in Albania, drove the expansion of the trade deficit by 26.3%, during the first five months of the year”.

Bank of Albania deems that a similar picture will characterize also the second half of year, and the external trade exchanges shall not support the economic growth during 2016.

Inflation

Annual inflation stood at 0.7% in May, shifting towards the direction and with the intensity expected by the Bank of Albania. Mr. Sejko says that “the improvement of economic activity drove to the increase of core inflation, while the decrease of supply-side shocks effects was accompanied by the decrease of disinflationary pressures imported from the external markets”.

Brexit

The Bank of Albania evaluates that the risk balance on the expected medium-term developments continues to trend down. In particular, Bank of Albania is attentively following the Brexit phenomenon and the consequences it may have for the Albanian economy.

Mr. Sejko adds: “Our analysis shows that the Albanian economy and financial system are immune to the direct shocks that may come from the expected exit of the United Kingdom from the European Union. Our trade exposure to United Kingdom, in the form of imports and exports, is almost ineligible. Also, direct or financial investments originating from United Kingdom in Albania are low, while remittances account for somewhat higher than 10% of total remittances. In parallel, the Albanian banking system has a low exposure to the most extreme fluctuations of the British pound and British financial system”.

On the other hand, Albania has a higher exposure to possible indirect shocks that Brexit may have on the European economy and financial system. The latter are our main economic and trading partners. Any negative reaction of them would be transmitted to Albania as well.

Related to these indirect effects, Mr. Sejko says:

“First, the materialisation probability of the extreme shocks is relatively low. We are confident that the stakeholders included in discussions will know to avoid unpleasant situation to everyone. Nevertheless, we are continuously monitoring the situation.

Second, the Albanian economy and financial system appear to be more prepared to face the possible shocks, compared to similar previous situations. We will continue to work aiming to increase their willingness and immunity.

Third, in the event of a further worsening of the situation, Bank of Albania has the will and the right instruments to guarantee the accomplishment of its price stability objective and to support the activity and soundness of the financial system. In particular, the monetary policy would undertake a stronger stimulating nature, by initially using the remained space of traditional instruments, and further addressing, if necessary, the non-traditional instruments of the monetary policy”.  /balkaneu.com/

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