I am here today, in this exceptional communication format, to announce the last decision on monetary policy of the Bank of Albania. This decision follows the previous measures undertaken by the Bank of Albania to mitigate the impact of COVID-19 pandemic on both economic and financial health of Albania.
Today, on the meeting of 25 March 2020, the Supervisory Council of the Bank of Albania decided to further ease the monetary policy stance and the monetary and financial conditions in Albania. In more concrete terms, the Supervisory Council decided:
- to reduce the policy rate from 1.0% to 0.5%;
- to reduce the interest rate for the overnight lending facility from 1.9% to 0.9%;
- to maintain the interest rate for the overnight deposit facility unchanged, at 0.1%.
The spread of COVID-19 pandemic in Albania poses a challenge to the economy and financial system. The necessary precautionary measures taken by public and private authorities to limit the spread of Covid-19 in the population, will have a two-fold impact on the economic activity. On one side, the temporary reduction in production and employment drives to a decrease in the supply of goods and services in the market and a reduction in household income. On the other hand, social distancing drives to the fall of the demand and the narrowing of sales, revenue, and business liquidity.
The Supervisory Council deems that the lowering of the policy rate is a necessary measure to: reduce the cost of new borrowing; reduce the cost of servicing the existing debt; and facilitate the circulation of liquidity in the Albanian enterprises and households. It helps the smooth functioning of the monetary policy transmission mechanism and relieves the pressure on the financial balance sheets of the economic operators, providing them with more time, space and breathing to encounter the shock.
The today decision is a complementary to the measures we have undertaken to minimise the effects of the pandemic. During the last days:
- The Bank of Albania has increased the operational capacities to guarantee the supply of the economy with currency and banknotes as well as to ensure the smooth functioning of the electronic payment system.
- Within restrictions of time on movement decided by the public authorities, all economic operations should know that the payment system will function smoothly.
- The Bank of Albania has adopted the operational strategy of unlimited liquidity into the banking system. This sector, businesses, households and public sector, through this strategy, will have the possibility to withdraw at the Bank of Albania all the necessary liquidity and required by them.
- The Supervisory Council decided to ease the postponement procedures by a quarter of loan instalments to businesses and households affected by the crisis, by providing to the banking sector the necessary regulatory space to perform it.
These measures that we have undertaken, within our scope of competency, provide and complement the fiscal package announced by the Albanian Government, which aims at shifting a part of the financial bill for facing the crisis from private sector to public sector.
The Supervisory Council remains committed to continuously monitor the situation. In line with the measures undertaken by the other central banks and depending on the situation's evolution, Bank of Albania remains willing to use all the operational instruments and the regulatory space available to minimise the pandemic consequences in the Albanian economy and financial system.
In any event, the objective of our action will be to maintain the monetary and financial stability of the country, the easing of crisis costs to Albanian enterprises and households, and the establishment of premises for a rather rapid recovery of the economy in the following period. The fulfilment of these preconditions open the path to follow our objective, to maintain price stability both in medium and long term.
Our monetary, regulatory and institutional measures will be into force as long as it will be necessary.
In a longer-term perspective, the Supervisory Council recalls the attention to emphasise that the messages we have provided continuously on the health of the Albanian economy and banking system remain valid. Allow me to re-emphasise:
- Albania has a good economic and financial health;
- the functioning parameters of economy and banking system are sound;
- the liquidity and capital reserves of the Albanian banking system are high.
In this context, the Supervisory Council notes that the minimisation of the long-term consequences requires serious, coordinated and harmonised efforts by all public and private authorities in Albania.