The Governor of the Bank of Albania, Gent Sejko said that The health emergency caused by the spread of Covid-19 and the measures of public authorities to control it, in Albania and in the world, pose a challenge for the economic and financial stability of the country, for the health of the finances of businesses and families, as well as for the sustainability. of the country's economic growth, in the medium and long term.
The governor stressed that the current monetary policy stance remains appropriate to cope with the emergency, but further escalation of the shock or the creation of difficulties in the monetary policy transmission mechanism would require increased monetary stimulus and, potentially, the adoption of unconventional instruments. saj.
The health emergency caused by the spread of Covid-19 and the measures of public authorities to control it, in Albania and in the world, pose a challenge for the economic and financial stability of the country, for the health of the finances of businesses and families, as well as for the sustainability. of the country's economic growth, in the medium and long term.
Available information indicates that Covid-19 will have a strong impact on all economic and financial indicators of the country.
Measures of social distancing and rising uncertainty have led to a general slowdown in almost all components of aggregate demand: exports of goods and services, household consumption and investment. In parallel, the temporary closure of some production and service activities has led to a further decline in production. This double shock, demand and supply, will be reflected in declining economic activity during 2020. Further, declining output is expected to be accompanied by declining employment, rising unemployment, declining household incomes and financial difficulties for businesses.
The medium and long-term dynamics of economic development, in Albania as well as in the world, will depend on the duration of the pandemic.
In the positive scenario, that of a gradual reduction of social distancing measures during the second quarter, economic activity in the country is expected to mark the peak of slowdown in the second quarter, to continue to remain in negative territory for the next two quarters, and to returns to growth in 2021. This scenario predicts a relatively stable inflation rate during 2020 and a gradual increase towards the target in the next two years. In this scenario, the pandemic will leave visible but transient traces in the country's economy and finances. Above all, it will not affect economic and financial balances and medium and long-term development trends.
On the other hand, a potential extension of the pandemic beyond the second quarter implies a proportionally higher negative impact on the economic and financial indicators of the country.
The Supervisory Council deems that the primary objective of public policy, as well as the response of the private sector, should be to take measures to cope with the emergency and create the premises for the speedy recovery of economic growth in the future. This will require, firstly, maintaining the country's monetary and financial stability and, secondly, limiting damage to the country's productive capacity.
In this context, the Supervisory Council considers that fiscal policy has a primary role in coping with the situation. Allocation of funds needed to cope with the health emergency, social assistance for affected and needy families, as well as fiscal measures to improve the liquidity of businesses, are necessary measures to address the situation. Increasing public debt is an acceptable cost of maintaining the country's economic and financial balance.
Also, the Supervisory Council notes that private business should be flexible in adopting new business models, careful in managing the liquidity situation, as well as far-sighted in a fair cost sharing, in the interest of maintaining production chains of service.
For its part, the Bank of Albania has taken a full package of measures to address the situation.
- Facilitation of the monetary policy stance by the Bank of Albania, through the reduction of the key interest rate to 0.5% and through the unlimited supply of liquidity to the banking system, promoting the normal functioning of the financial markets and enabling the increase of the volume and the reduction of the cost of credit to the private sector.
- The introduction of easing measures in the field of banking regulation has encouraged the temporary postponement, for a quarter, of the payment of loan installments, improving the liquidity situation of businesses and individuals in temporary difficulties and their chances of survival.
- In parallel, we have eased the cost of operating the electronic payment system, responding to the growing needs for this type of service, and we have taken care of the normal supply of the economy with physical money.
The Supervisory Council considers that the Bank of Albania has taken the necessary measures in due time. In response, financial markets continue to operate within normal limits, despite increased public sector demand for funds and increased uncertainty over the country's economic and financial future.
At the end of the discussions, judging by the projections of the scenario of the rapid end of the pandemic, the Supervisory Council assessed that the current monetary policy stance is appropriate. For this reason, he decided:
- Leave the key interest rate unchanged at 0.5%;
- Leave interest rates on overnight deposits and loans unchanged at 0.1% and 0.9%, respectively.
Also, the confirmation of the positive scenario means that monetary policy will continue to remain easing throughout the forecast horizon.
On the other hand, the Supervisory Council notes that the uncertainty in forecasts, this time, is extremely high. Also, this uncertainty takes the form of a relatively high probability that future developments will result in the downside of our expectations. Downside risks arise particularly from:
- possible extension of the pandemic beyond the second trimester;
- creating problems in the monetary policy transmission mechanism, in the form of rising interest rates and financing costs of the private sector, in the form of deteriorating bank credit supply, or in the form of strong fluctuations in other market indicators financial.
The Supervisory Council notes that the materialization of these risks may require a further easing of the monetary policy stance. In accordance with our contingency plans, this relief may take the form of unconventional instruments, instruments which will always be in accordance with the reality and needs of the Albanian financial market and the legal framework governing the activity of the Bank of Albania.