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Inflation higher than expected, BIRN: BSH returns to monetary policy tightening

Politiko 2023-03-23 17:52:22

Inflation higher than expected, BIRN: BSH returns to monetary policy tightening

The Bank of Albania decided to increase the basic interest rate in the Albanian economy to 3% from the previous 2.75%, stating that the reduction in inflation over the past two months has been less than its analysts had hoped.

The basic interest rate brings changes in the costs of loans and interest on deposits in the country, as well as indirectly affects the interest on public debt.

The Bank of Albania halted interest rate hikes months ago, believed to be because public debt interests rose far beyond what was reasonable, causing serious concerns for the country's economy.

The last time BSH changed the interest rates was November 3, 2022. But even after the recent increase, Albania remains a country with a low interest rate compared to developed countries. Just a few days ago, the US Federal Reserve raised the interest rate from 4.75 to 5% while the European Central Bank raised it from 3 to 3.5%.

"The Supervisory Council judged that the high inflationary pressures originating from the internal environment are an important risk factor, first, for respecting the objective of price stability and, further, for the stable and long-term growth of the country," declared the governor. Gent Sejko on Thursday at the press conference for the communication of the decision.

"In these circumstances, he considered it necessary to reduce the monetary stimulus through an increase in the basic interest rate. The Supervisory Board notes that this measure is consistent with our previous communications and consistent with recent moves by major central banks," he added.

Together with the basic interest rate, BSH increased the interest with which it offers one-day loans to second-level banks to 4%, as well as the deposit acceptance rate from these banks to 2%.

The current forecast of the Bank of Albania is that inflation will continue to be high, but slowing down and that it is expected to return to normal by the middle of next year.

BSH's objective is for inflation to fluctuate around 3%. In March, inflation was 7.1%, while it peaked in October with 8.3%. Reporter.al

 

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