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The European Central Bank (ECB) raised interest rates again on Thursday by 0.25 percentage points, taking them to the highest level since early 2001.
The main reference rate, that of the main refinancing operations reached 4%, the interest rate of daily deposits to 3.5%, while the interest rate of daily loans increased to 4.25%.
The next increase was an expected move, in the continuation of this institution's efforts to fulfill the mission of reducing inflation close to its 2% target.
Despite a long cycle of interest rate hikes, inflation in the Eurozone still remains high, above the 5% level.
The next increase in interest rates by the ECB has an impact on all financial products in the European currency, thus affecting the highly euroized Albanian market. The fastest and most direct effects are conveyed in the interest rates of loans, which are generally built on the performance of the reference index (benchmark) of Euribor.
Based on the expectations for the increase in interest rates from the ECB, Euribor has marked a new phase of growth since the beginning of June. On June 14, the 12-month Euribor reached 3.94%, very close to the maximum level of the last 15 years, which was recorded in March of this year.
For borrowers who have loans with variable interest rates in Euro, this increase is expected to translate into a further increase in the monthly loan installments.
In the last 12 months, the 12-month Euribor has increased by almost three percentage points, which are automatically transmitted to the total interest rate of the loan in the review, which is usually done with annual frequency.
Currently, interest rates for loans with variable interest rates in Euro are even higher than those in Lek.
The most common benchmark indicator for the Lek, the 12-month Bond yield, has dropped to 3.29%, the lowest level in the last 10 months. The annual change in the yield of 12-month Bonds is only 0.8 percentage points, compared to the increase of about three percentage points in Euribor.
Moreover, fixed interest rates above the Euro benchmark are generally higher, at least for existing loans. This has happened because the Euribor has been in negative territory for years (it was calculated at 0 for determining loan interest rates).
The determined course that the ECB is following to increase interest rates is bringing a significant increase in the cost of loans for Albanian borrowers, although the increase in interest rates has been partially softened by the fall in the exchange rate of the euro with the Lek.
The movements in different directions of the benchmark indicators in the first part of this year have caused, as rarely, the interest rates for loans in Lek to be lower than for those in Euro.
The Supervisory Council of the Bank of Albania will hold its next monetary policy decision-making meeting on July 5.
Financial analysts think that most likely this time the Bank of Albania will also increase the base interest rate, seeing the signs of an increase in inflation in the month of May and the continuously high levels of base inflation./Monitor
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