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Ekonomia

High prices, Bank of Albania raises interest rate for the first time in 11 years, from 0.5% to 1%, impact on citizens

High prices, Bank of Albania raises interest rate for the first time in 11

Sanctions against Russia and rising prices in international markets have created an uncertain situation in the Albanian economy, which according to the Central Bank has shown signs of recovery. The Governor of the Bank of Albania, Gent Sejko, said that the key interest rate has been increased from 0.5% to 1% to maintain price stability, which will remain high until 2023. After two years at the historically low level, the Bank of Albania has decided to raise the key interest rate from 0.5% to 1%. The reason for this, according to Governor Gent Sejko, is the effort to maintain price stability, as the Russia-Ukraine war has shaken international markets. But the increase of interest rates also increases the cost for the citizens. "Inflation performance in Albania has been affected by rising food prices, oil, and production and transportation costs. The further performance of prices will be determined by the intensity and duration of this conflict, by the impact it will have on prices and international trade, as well as by the sustainability of economic growth in the country ", said Sejko.

Slowing economic growth

The increase of the base rate, according to the governor Gent Sejko, will partially amortize the shock that comes from the rise in prices of products, but if the conflict lasts, the bank will increase the interventions, increasing the liquidity in the market. According to him, rising inflation will reduce consumption and slow down economic growth. "Data coming from foreign markets signal that prices in international markets will continue to remain high during 2022 and 2023. These high prices will erode household purchasing power and will be accompanied by a slowdown in global growth. As a result, global inflation projections for the next two years are revised upwards, while economic growth projections are revised downwards. The update of medium-term forecasts shows that the Albanian economy will suffer the consequences of the shock. "Rising prices in world markets and reducing foreign demand will be accompanied by higher inflation rates and slower economic growth compared to our previous estimates," he said. However, the Supervisory Council underlined that, even after this move, the monetary policy stance continues to be stimulating for the growth of the economy, employment and wages. Governor Gent Sejko, meanwhile, said that in the newly created reality, this stance offers a better balance between the risk of accelerating inflation and the risk of hurting the economic recovery. The Bank of Albania finds that the inflation performance in Albania during the last months has been influenced by the increase of the prices of food items, oil, and the costs of production and transport. In macroeconomic terms, The upward trend of inflation reflects the rapid and stable growth of demand, wage and employment growth, as well as the rapid rise of prices in international markets over the last two quarters. The latter have been high during the second half of last year and have been put under increased pressure by the geopolitical tension that accompanies the conflict in Ukraine.

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