TIRANA, Oct. 5, 2022 – Albania’s central bank has raised its key interest rate by half a percentage point to 2.5 percent, the Bank of Albania Supervisory Council decided Wednesday.
The decision marks the fourth consecutive increase of the rate this year, which is now at the highest level since 2014.
The increase in rate in practical terms means that those who have or take loans in Albanian Lek (ALL) will have to pay more in interest.
BoA Governor Gent Sejko told the media in a press conference that the decision came after inflationary pressures are proving to be stronger and more sustained than previously predicted.
“The new information obtained in the analysis suggests that supply shocks and increased uncertainty in the world markets are being channeled into increased inflation and a slowdown in the rate of economic growth in the country,” Governor Sejko said. “Likewise, the growing demand for goods and services in the country, the dynamic labor market and expectations for high inflation are facilitating its spread in the Albanian economy.”
Sejko added the increase in rate was aimed at the gradual return of inflation to its target.
Albania’s official goal of 3 percent inflation has been overshot as global inflation pressures have led to the highest prices in 20 years in Albania.
Following global trends, Albania’s inflation has spiked to levels it hasn’t seen in two decades, with official inflation reaching 8 percent in September, according to official data.
Real inflation in terms of consumer prices could be as high as 12 percent, however, according to some economists.
The base interest rate had remained unchanged for years at its lowest historical levels at the rate of 0.5 percent. But in March 2022 BoA intervened for the first time by increasing it by 0.5 percentage points, to continue to do increases three more times.
The moves of Bank of Albania reflect those of the world’s largest central banks in the European Union and the United States, which have both raised their key interest rates this year to deal with inflation following quantitative easing during the pandemic as well as the start of the Russian invasion of Ukraine, which has put additional pressure on prices and supply chains, especially for food and energy.
