TIRANA, March 24, 2022 – Responding to recent high inflation, Albania’s central bank has increased its benchmark interest rate by 0.5 percentage points, bringing it to the level of 1 percent, the Bank of Albania announced on Wednesday.
It’s the first time in 11 years that the bank intervenes through its key interest rate, which will lead to bank loans becoming more expensive but also reward savers who keep the money in the banks or in treasury notes with higher interest rates.
Governor Gent Sejko said the bank’s “objective of price stability in the medium term” was “at risk,” forcing the central bank to act.
The bank “aims to create the necessary monetary conditions to meet our inflation target, to maintain financial stability, as well as for sustainable and long-term growth of the economy and employment in Albania,” Governor Sejko said after a meeting of the Bank of Albania Supervisory Council, where the decision to increase the rate was made.
The Albanian central bank’s action is part of a larger trend internationally with central banks being forced to increase rates to deal with high inflation.
According to Instat data, consumer price inflation recorded levels of 3.7 percent and 3.9 percent, respectively in January and February. Although the full official data is missing, the available information shows a further increase in prices in March.
The price increases are a combination of post-pandemic growth and supply chain issues combined with the conflict in Ukraine, according to economic experts.
“The inflation performance in Albania has been influenced by the increase of food prices, oil, and production and transport costs. In macroeconomic terms, the upward trend in inflation reflects the rapid and steady growth of demand, wage and employment growth, as well as the rapid rise in prices in international markets over the last two quarters,” Bank of Albania said in a statement.
Geopolitical tension that accompanies the conflict in Ukraine is making pressure on prices tougher, the bank’s experts said.
“The further performance of prices will be determined by the intensity and duration of this conflict, by the impact it will have on prices and international trade, as well as by the sustainability of economic growth in the country,” the central bank said.
The bank believes data it is getting from international markets signals that prices will remain high during 2022 and 2023, eroding household purchasing power and will be accompanied by an economic slowdown.
“Consequently, global inflation projections for the next two years have been revised upwards, while economic growth projections have been revised downwards,” according to the BoA.
Albania is not immune to these international trends, the bank notes, but it believes that the country’s economy will continue to grow in 2022 and in the medium term.
Albania’s central bank now predicts that “inflation will fluctuate around the level of 5-6 percent for the rest of 2022. Further, with the expected calming of international markets, inflation is expected to decline during 2023.”
