PRESS RELEASE
The Supervisory Council reduces the core interest rate

In the today's meeting, the Supervisory Council of the Bank of Albania examined the compliance of the present monetary policy with the inflation indicators performance, forecasts and the latest expectations. Being based mainly on :

I. Developments in the real sector

• The current data on developments in the real sector suggest that the domestic economy is following its positive trend. Data from sectors such as construction, transport, services and particularly agriculture referrer to a 6 per cent forecast of the economic growth.
• The private business is expected to get a higher support from bank lending, the surplus of which for 2004 according to the Monetary Program of the Bank of Albania is expected to be about 28 higher than last year.
• Such a support relies on: the smoothing monetary policy of the Bank of Albania, which reduced the core interest rate by 2.5 per cent within a 13-month span, the growing competition (more branches and a wider range of services) in the banking market following the Savings Bank's privatization.
  
  
  II. Monetary and inflation indicators developments
   
• Once the fixed line telephony seasonal item prices went down, the annual inflation rate of April was within the Bank's forecasts 3.2 %.
• Inflation expectations on the coming months and 2004 year-end stay within the target range 2-4 percent publicly recognized by the Bank of Albania.
• Recent developments in exchange rates, which have brought about an appreciation of Lek versus euro and US dollar;
• A relatively big gap between Lek interest investment rates and euro and US dollar rates.
• The volatile rise of fuel price in the international prices is expected to give a moderate impact on our domestic market, to soaring prices in transport as well as production and service links. Nevertheless, the higher agricultural production than in previous summers might make up for the inflationary impacts of fuel price.
• Furthermore, these supply shocks can be accommodated to smooth the negative impacts on domestic production in a short-time period. In such cases, the counterbalance of impacts on prices had better be done gradually thrpughout a mid-term period;

In order to further lower the borrowing cost in economy, which could spur investments, and lessen the shocks the economy might get from the rising oil prices, the Supervisory Council of the Bank of Albania decided to reduce the Repo's interest rate by 0.25 percentage points. Now, the core interest rate in economy is 6.00 per cent.

It was mainly the April inflation rate and expectations on the coming months that led the Bank of Albania reduce the core interest rates twice by 0.25 percentage points within two weeks time. Such a decisions is expected to bring about the overall reduction of interest rates in economy, such as those of deposits, treasury bills, lending, backing up in this way the private sector borrowing.

Meanwhile, this larger gap between Lek interest rates and those in foreign currency, mainly euro and US dollar, is deemed to ease pressures on Lek, supporting thus developments in the real sector in achieving economic growth objectives and a stable development.