TIRANA, March 23, 2023 – Albania’s central bank has raised its key interest rate by another quarter of a percentage point in its attempt to fight inflation, the Bank of Albania governor announced in a press conference.
The decision of the bank board brings the rate to 3 percent, directly affecting loans and bank deposits denominated in Albanian lek (ALL).
The BoA’s move came after four months of bucking the international trend by keeping the rate unchanged even as large central banks across the world move to aggressively raise rates to deal with persistent high inflation.
Governor Genc Sejko said that while Albania’s inflation initially increased due to import and fuel prices, it is now being kept high by domestic market pressure.
“Although inflation has decreased, the internal pressures on prices and especially those coming from the labor market are strong and growing. This growth has supported the expansion of the disposable income of Albanian families, has fueled the expansion of family consumption and has helped in the sustainability of economic growth,” Mr. Sejko said at the press conference.
With rate hikes by central banks in the United States and Europe causing fears in the banking sector, Governor Sejko assured the citizens that the banking system in Albania is safe.
“Our financial system is unaffected by exposures from these financial markets. Not only from American banks, but also from Credit Suisse, it is almost negligible below 0.8%, a minimum exposure that the Albanian financial system has,” he said. “The consequences of the 2008 crisis and the debt crisis in the Eurozone or the Greek crisis have made us take regulatory and prudent measures, in such a way that the banks are overcapitalized and liquid.”
The Bank of Albania also left unchanged its forecast that inflation will decrease in the middle of the next year to the predicted objectives of 3 percent.
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 2022.
Inflation in Albania has been helped in being kept lower as the local currency has strengthened in recent months against the euro and the dollar.
