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A month after the European Central Bank lowered the base interest rate for the lek, the Bank of Albania made the same move. At the last meeting, the Supervisory Council decided to lower the basic interest rate for the lek to 3%. In other words, it reduced the cost of the local currency, making the lek cheaper. According to the governor, the positive performance of the economy and the drop in inflation were the main reasons for this decision.
But what has happened to the basic interest rate in these two and a half years when the Albanian economy and not only the world economy was faced with the significant increase in prices, what is otherwise known as the inflation crisis?
Faced with such an increase in price and as a response to inflation, in February 2022 the Bank of Albania began tightening monetary policy, raising the base rate from 0.5%, which was also the historical minimum, to 3.25%, with the last increase taking place in November 2023. Along with Wednesday's reduction, the Bank of Albania has changed the base rate a full 8 times in these two and a half years.
But does the reduction in the base rate indicate that the period of rising prices is already over?
The signals coming from the international markets, where we import most of the products, are mixed and the growth outlook remains uncertain.
In June, the European Central Bank lowered the base interest rate for the euro to 3.75%, as inflation also decreased in European countries. While the Federal Reserve in the United States of America has not yet undertaken such a move, waiting for the situation to become clearer.
A similar panorama regarding prices is also in Albania.
In our country, inflation decreased in May to 2.2% and since January of this year, it has entered a downward trajectory. This testifies to a more relaxed situation and the reduction of the base rate aims to stimulate the economy, restrained until now by the tightening monetary policy.
But what is expected to happen after the reduction of the basic interest rate for the lek by the Bank of Albania? What are the expected effects?
What is expected is a general reduction of interests in the economy. In other words, banks should reduce the interest on new loans that will be taken in lek. Interest on deposits in the local currency, as well as securities, treasury bills and bonds, will also fall./ A2CNN
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