PRESS RELEASE
Interview with Gent Sejko, Governor of the Bank of Albania. ABC News TV

Question: Recent data on inflation seem to challenge your efforts to boost consumption and keep inflation within your target band. What is the Bank of Albania considering, in concrete terms, and what suggestions do you have for the Government, which perhaps should also intervene at this point?

Governor: We are conducting our analyses for more accurate assessments related to the impact of various factors contributing to the downtrend of inflation in February. Following this performance of inflation, we have once again made a comprehensive analysis of the situation and factors contributing to the fall of inflation. We should, however, keep in mind that this fall is only in monthly terms. One contributing factor to this figure could have been the high base of food price inflation in February last year, due to the floods in Albania. I would like to emphasise that we are not in a deflationary situation. It is true that inflation is currently below the 3% target of the Bank of Albania. I think and judge that the fall in inflation at the level of 0.2% is the inflation only for this month. The Albanian economy and the level of inflation stand below the required level; on the other hand, our projections point to higher economic growth in 2016. The fall in inflation is more attributable to the fall in oil prices in global markets, rather than to a drastic fall in consumption.

Question: Nonetheless, some elements of declining consumption are evident.

Governor: Consumption is not currently at the highest possible level. This is the case not only in Albania, but also across the entire region, as its countries are facing economic difficulties and stagnation. However, the trends are upward and positive, and we expect consumption and investments to grow in the forthcoming months.

Question: In fact, credit data are downward again. Your efforts have been reflected very well in the marked reduction of non-performing loans; however, they have not been reflected in the growth of credit. Do you plan to undertake additional measures?

Governor: In the past year, credit continued and increased to the level of 1.76%. The banking and financial system in Albania generates EUR 400-500 million new loans every year. This means that credit did not stop, but that its growth decelerated below the levels that we aim and seek to have, in order to provide the right impetus to the level of economic growth. For the first time in 2015, non-performing loans fell from 23% to around 18%, more precisely to 17.6% according to our latest statistics. This is a positive development for providing the stimulus and triggering the optimism of commercial banks and financial sector to boost credit growth. We should keep in mind that the central bank, with its accommodative monetary policy, contributes to the supply side, whereas lending is related also to the demand side. It is a clear fact that we have had low aggregate demand for credit, which is related to many elements such as the perception of investors and of the market about the performance of the economy. There is some hesitation. Of course, economic difficulties, facing not only Albania but also the rest of the region, have an impact on the initiatives of investors and the level of consumption and investments. Against this backdrop, demand for loans is not so high or optimistic. These two elements are intertwined. On the one hand, the central bank and the financial system are trying to boost lending. Conventional monetary policy measures have been taken by both our central bank and the European Central Bank. Such measures have contributed to credit continuation, as credit price has been lower. This means the monetary policy has yielded its results; prices have fallen across all the segments in the financial market, not only for credit but also for government securities and all the other segments, although the supply side counts most.

Question: At this point, are you taking into consideration to intervene or suggest possible interventions?

Governor: We are certainly discussing with the government. In its advisory role, the Bank of Albania gives expert advice about the structural reforms, within its realm of expertise. In the meantime, the government has undertaken and continues to undertake a number of structural reforms, which are giving and will give the effects in due time.

Question: Could you mention more specifically, which ones?

Governor: Action against informality is an element that will undoubtedly help prevent unfair competition and will support those businesses with a clear orientation in the market place. Moreover, this action will have a positive impact on the banking and financial sector, as it would prevent the application of different standards of financial reporting by borrowers, and facilitate, in turn, banks' decision on credit.

Question: Are you considering non-conventional policies?

Governor: I have mentioned in previous discussions that we are not facing such a situation so as to need to use the quantitative easing, employed by central banks in many countries. There are many elements and criteria that condition and determine the use of quantitative easing, as a non-conventional method of the monetary policy.

Overall, I would say that the Albanian economy has not been in recession. This term is used when the level of economic growth is close to zero. Commercial banks have liquidity surplus. On the other hand, we do not judge that inflation will be close to zero. In practice, irrespective of the inflation rate in February 2016, in annual terms, inflation averaged around 2%. We need to see over time both the performance of inflation rising and the performance of the banking system and the performance of bank lending. For the moment, the indicators reveal positive growth trends. Economic growth in 2015 stood at 2.7% and we are confident that in 2016 economic growth will be higher than in 2015. In 2016, we expect economic growth to hit 3% or higher. We will have to make our adjustments over time, depending on the resulting performance and figures, but for the moment we do not envisage any revision to the economic growth level. We have conducted our analyses; we have also taken into account the impact from global factors and the effects from the fall in oil prices. Of course, in the event of further developments and adverse factors, we will revise economic growth for 2016; but for now we do not have such elements. We expect economic growth to be fuelled by the growth in investments and domestic consumption. The Bank of Albania has implemented an accommodative monetary policy by lowering the interest rate and has announced that the monetary policy will remain accommodative in the forthcoming two years, in the short and medium-term. As I said, we are not considering the implementation of the quantitative easing, as the market and the financial system have ample liquidity. On the other hand, if necessary and over time and if lending will not perform at the proper pace, we are considering the possibility to realise stimulating credit schemes. That does not imply it will happen; we are only analysing the forms of such schemes.

Question: Which sectors do you think may be stimulated and enhance consumption? I believe the key to all this is to set consumption in motion.

Governor: We are not at the moment to think about preferring or supporting a certain sector over other sectors. We would prefer credit to support all the sectors and all the businesses. Commercial banks, with their strategies, have projected more credit to support the small enterprises segment. The underlying reason may be the credit risk. Micro enterprises and households may be verified more easily and pose lower credit risk.

On the other hand, the Bank of Albania would rather have credit extended across all segments, especially in the corporate (larger enterprises) segment. This is the most important segment and the engine that drives economic growth. If this segment moves forward, others will follow along, as they serve as subcontractors to the larger enterprises.

Question: The monetary policy is almost exhausted, facing limited opportunities. Are you considering providing any suggestion about government policies? For example, on the pensions part. Apparently, to enhance consumption, the currency in circulation should be added to the demand side rather than to the supply side.

Governor: We think that there is some more room to continue with the accommodative monetary policy. On the other hand, there are also many alternative forms to enhance consumption, as you mentioned, for example higher pensions, unemployment benefit, or other alternative forms to stimulate various prices for various products in various sectors. This is a vast area in which the government may focus. The Bank of Albania has its role and we are focused in our reforms related to the financial sector, to stimulate the credit supply, and growth of investments and consumption. On the other side, structural reforms and initiatives are within the realm of the government. I am very confident that the Government of Albania, as well as the central bank, will analyse and monitor the performance and developments in the economy and will make appropriate decisions to achieve the objectives.

Note: The interview was conducted on 10 March 2016.