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The Bank of Albania does not move from low interest rates, the base rate remains at 3.25%

2024-02-07 19:14:00, Ekonomi CNA

The Bank of Albania does not move from low interest rates, the base rate remains

The Supervisory Council of the Bank of Albania decided today to keep the base interest rate unchanged at 3.25%.

The governor, Gent Sejko, said that, although decreasing, internal inflationary pressures remain relatively high and are not yet in line with the objective of price stability. This trend is dictated by the relatively high demand for goods and services, which keeps profit margins high, as well as by the rapid increase in wages, which is further translated into increased production costs.

"The Supervisory Council judges that high inflationary pressures from the domestic economy remain a risk factor for price stability in the country and that the balance of risks for inflation is on the upper side. In this context, he emphasizes that he remains ready to continue the process of normalizing the stance of the monetary policy, if this measure is considered necessary to control and guarantee price stability. In any case, future monetary policy decisions will be conditioned by new information, as well as be consistent with the direction of the fiscal policy and the course of the exchange rate," said Sejko.

Consumer price inflation averaged 3.9% in the fourth quarter, with a slight decrease compared to the previous quarter. The decline in inflation was driven by a slower pace of growth in food prices, while fuel and rental prices rose and inflation in other basket items was relatively stable.

According to the Governor, the drop in inflation during the fourth quarter reflected the drop in internal inflationary pressures. This decrease has reflected both the effect of the high comparative base of the previous year, as well as the consequences of the normalization of the monetary policy stance so far. On the other hand, foreign inflationary pressures increased during the fourth quarter, despite the strengthening of the exchange rate, as a result of the rapid increase in the prices of energy products in the world markets.

According to INSTAT data, the volume of economic activity increased by 3.5% in the third quarter of last year. For the Bank of Albania, the available data suggest that economic growth will remain at similar levels during the fourth quarter.

Economic growth found higher support from foreign demand and – in particular – from the rapid growth of the tourism sector. On the other hand, consumption and private investments continued to grow, but at slower rates compared to previous quarters, while fiscal policy had a neutral contribution to economic growth. This demand profile is reflected in the expansion of activity in the services and construction sector, while activity in the agriculture and industry sectors declined.

"The expansion of demand for goods and services has pushed the economy into a positive phase of the business cycle. This progress is reflected in the continuous growth of employment, in the minimum historical levels of the unemployment rate, as well as in the rapid growth of salaries in the private sector. The expansion of employment and wages has continued to support the growth of consumption in the economy, but - on the other hand - it also keeps internal pressures on inflation high.

Monetary policy has had an important role in controlling inflation and maintaining the general monetary and financial stability of the country. The careful normalization of the stance of monetary policy, achieved through gradual increases in the base interest rate, has helped the normal functioning of the domestic financial markets. It has been transmitted to a general increase in interest rates of deposits and loans, creating premises for a more balanced performance of the demand and supply of funds in the economy, but has left the general financial conditions in the country in still stimulating positions ", Sejko said.

According to him, the Albanian economy will grow, driven by the further expansion of consumption, investments and export of services. Economic growth will be fueled by the liquid balances of Albanian businesses and families, by their confidence in the future, by the rapid growth of income from tourism, as well as by the expansion of lending, reflecting the banks' positive approach to lending. However, the pace of economic growth is expected to mark a slight slowdown in 2024, as a result of the still challenging foreign environment, and to return to its potential in the following years.

Inflation is expected to continue to reduce further in the coming year and return to target in its final quarter. This reduction will reflect the more balanced performance of aggregate demand and supply in the domestic economy, as well as the further reduction of inflation in our trading partners.

According to the Bank of Albania, inflation is expected to return to the target of 3% in the last quarter of this year./ Monitor magazine 

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