Albania’s Central Bank Raises Interest Rates

TIRANA, April 11 (Reuters) - Albania's central bank raised its key interest rate for the second time in less than a month and by a full percentage point on Thursday after March inflation data again seriously exceeded its upper target. The Bank of Albania said in a statement it had raised its repo rate to 8.5 percent from 7.5 percent. It previously raised rates by half a percentage point on March 21.

"The decision to hike interest rates was taken after an analysis of consumer price developments... concluded that inflationary pressures in the economy are considerable and could lead to the year-end target being exceeded," it said. The Bank's target is to keep consumer price inflation between two and four percent in 2002, but during the first quarter prices rose at almost double the top of that range.

Data on Tuesday showed a CPI surge slowed only slightly in March to 7.6 percent year-on-year from 7.7 percent in February. An electricity crisis that has resulted in chronic power cuts in the impoverished Balkan nation had induced a rise in production costs and fuelled prices in a chain reaction, the bank noted. There were heavy cash withdrawals from Albania's largest bank, the Savings Bank if Albania, last month ahead of its privatisation, by depositors rattled by a debate on banking stability.

This inflated the amount of money in circulation and devalued the local currency, the lek, the central bank said. Inflation in the euro zone, which supplies more than 75 percent of Albania's imports, was not expected to fall below two percent soon, and a hike in oil prices would also take its tall on inflation, the bank added. It suggested the government should reduce budgetary spending as interest in state-run assets that are up for sale had been tepid, lowering the prospects for privatisation revenues.

Albania had enjoyed a relatively sound macroeconomic performance in the past four years, albeit from a low base, with annual growth above seven percent and low inflation.