Bank of Albania shifts policy, cutting key rate by 0.25% to 3%
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- The new base interest rate is now 3.0 percent, BoA said.
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TIRANA, July 4, 2024 - The Bank of Albania has shifted direction for the first time since March 2022, easing its monetary policy by reducing the key interest rate by 0.25 percentage points.
The Supervisory Council of the Bank of Albania decided to lower the base interest rate to 3.0 percent, BoA said in a statement.
In February 2022, the Bank of Albania began tightening its monetary policy in response to rising inflation, increasing the base rate from 0.5 percent to 3.25 percent, with the most recent hike occurring in November 2023.
Governor Gent Sejko explained in a press conference that the positive economic performance and declining inflation were the primary reasons for this decision.
"Available data suggests that the Albanian economy continues to maintain a positive development trend. Economic activity, employment, and wages have all increased during the first two quarters of the year, inflation has been declining, financial markets have been relatively calm, and lending has shown progressive growth. These developments have generally been in line with our expectations," Sejko said.
However, he noted that the decline in inflation during the second quarter was relatively swift, driven by an increase in the supply of food products in regional and local markets. The effects of this are expected to persist throughout the remainder of the year.
"Our updated forecasts suggest that the positive momentum in the Albanian economy will continue in the future. The volume of economic activity is expected to grow during 2024 and beyond, while inflation is anticipated to hover around current levels for the rest of 2024, gradually rising towards the target in the first half of 2025," Sejko said.
He added that from a macroeconomic standpoint, the downward trend in inflation largely reflects a reduction in imported inflation, in response to similar trends in our trading partners and a strengthening exchange rate.
“Particularly, the reduction in food inflation during April and May was consistent with decreases in regional countries, indicating a positive supply shock," Bejko said at the press conference.
He emphasized that domestic inflation remains relatively stable, reflecting strong demand for goods and services, as well as rapid increases in wages and production costs.
The latest information suggests that the Albanian economy continued to grow in the first half of 2024 at rates comparable to last year.
Indicators from the real and financial sectors suggest that economic growth has been driven by expanding consumption, private investments and the tourism sector.
