TIRANA, Feb. 1, 2023 – Bank of Albania’s Supervisory Council announced Wednesday it would keep the central bank’s key interest rate unchanged at 2.75 percent.
It’s the second time in a row the central bank keeps the rate unchanged, bucking the trends of major central banks in Europe and North America, which have been raising rates several times to deal with high inflation. Albania’s central bank did hike the rate in 2022, however.
Governor Gent Sejko said the latest data on inflation was better than earlier expected, which means no rate hike was needed this time.
“The new information received in the analysis was, in general, better than our expectations. Inflation decreased in November and December, economic activity continued to grow in the second half of the year, while the effect of the normalization of the stance of monetary policy is appearing more fully in the financial markets,” Governor Sejko said, adding the positive trends are expected to continue.
The central bank’s forecast now suggests inflation will gradually decline during 2023 and return to target in the first half of 2024.
However, the Albanian central bank governor noted that further interest rate hikes could happen down the road if inflation doesn’t get closer to the bank’s 3 percent goal.
“The Supervisory Council reaffirms its judgment that high inflationary pressures remain the main risk to the sustainable and long-term growth,” Mr. Sejko said.
The news in Albania comes as the American Federal Reserve, European Central Bank and Bank of England are all expected to hike interest rates once again this week, as they make their own first announcements for the years.
Like in Albania, all three big central banks are trying to lower inflation without causing a major recession. All three banks are expected to set inflation targets near 2 percent.
Recent good news in the West has increased hopes central banks will eventually be able to slow the pace of rate hikes.
The key rate central banks control is typically the interest rate at which banks can borrow when they fall short of their required reserves. They may borrow from other banks or directly from the central bank.
Recent economic growth in Albania has been accompanied by an increase in employment and wages. The unemployment rate has fallen to an all-time low of 10.6 percent and the average private sector wage rose 12.3 percent in the third quarter of 2023
Governor Sejko said the Albanian economy is expected to continue growing, while the main indicators of financial stability are expected to remain under control.
“The economic growth of the country is expected to remain in positive territory, fueled by the healthy balances of the private sector, by the positive dynamics of the labor market, by the reduction of uncertainty and by a still accommodative financial environment. However, the pace of economic growth is expected to slow slightly during 2023 and return to historical growth rates in the medium to long term,” the central bank said in a statement.
