The Bank of Albania intervened again on Wednesday, for the fourth month in a row, increasing the basic interest rate by 0.5 percentage points, in an attempt to counter an ever-increasing inflation.
With today's decision of the Supervisory Council, the basic rate rises to the level of 2.75 percent. First the Bank touched it, in March when inflation showed the first signs of an upward trend, recording the first intervention after thirteen years of a stimulus policy that lowered the interest rate to its historic low of 0.5 percent.
The bank emphasized that inflationary pressures "remain the main risk on the sustainable and long-term growth of the country".
In the third quarter, consumer price inflation marked another increase, capturing an average value of 7.9 percent, after reaching, according to Instat, the quotas of 8 and 8.1 percent in August and September, respectively. According to the Supervisory Council, "the consequences of the impact of foreign supply on the Albanian economy are becoming more and more visible. In particular, the analysis of the available information suggests that inflationary pressures are increasing and their base appears to be expanding.
But according to the Bank's estimates, price increases have also been noticed in local products, part of the consumption basket. "The increase in inflation reflected, to the greatest extent, the increase in the price of food, oil and transport costs. These group-items generated about 8 percent of total inflation in the third quarter. However, the increase in prices has started to be present in most of the basket, including those items whose most of the added value is created in the country. This trend suggests the simultaneous increase in the basis and intensity of inflationary pressures", explained the Governor of the Bank, Gent Sejko, after the meeting of the Supervisory Council.
The Central Bank expects inflation to remain high until the end of the year, but to be progressively reduced during 2023 and to return to the target (3 percent) in the second quarter of 2024. Consequently, the Bank is expected to continue with the intervention of others in the following months. Such an aggressive policy was suggested earlier by the mission of the International Monetary Fund.
"Since risks to the inflation outlook are on the upside, monetary tightening should bring money in time and further interest rate increases are necessary. Actions taken now will help prevent a wage-price spiral, reduce the risk that inflationary expectations will become unmoored, and avoid excessive delays in monetary tightening, which may necessitate much higher growth later. large interest rates. The Bank of Albania should be prepared to raise the interest rate above the estimated level of neutral interest in case inflationary pressures do not decrease", the IMF recommended three weeks ago, predicting that "the basic interest rate will increases to 3-3.5 percent in 2022 and 4-4.5 percent in 2023".