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The IMF wants another base interest rate: It should increase to 4.5 percentage points

2023-11-06 11:39:30Biznes SHKRUAR NGA REDAKSIA VOX

The IMF wants another base interest rate: It should increase to 4.5 percentage

The Bank of Albania increased last week the base interest rate by 0.25 percentage points, bringing it to 3.25%, but the International Monetary Fund talks about a further increase of this rate.

Since March 2022, when monetary policy tightening began as a mechanism to fight inflation, the Bank of Albania has increased the base rate 6 times from the historic minimum level that was 0.5% at the beginning of 2022.

The governor of the Bank of Albania, Gent Sejko, said that high inflationary pressures from the domestic economy remain a risk factor for price stability in the country and that the balance of risks to inflation has shifted upwards.

The increase in interest rates is expected to continue. During the last visit to our country, the mission of the International Monetary Fund has recommended to the Bank of Albania to raise the base interest rate to 4.5% from the current 3%, in order to achieve the 3% inflation target.

"With the increase of internal inflationary pressures, in the conditions of tightening of the labor market and with real interest rates still negative, there is room for further increase of the base rate.

A gradual increase in the base rate towards a neutral position, estimated at around 4.5 percent, would help return inflation to the target target in early 2025," the IMF said in the official statement after nearly two weeks of inspections of the country's fiscal and monetary institutions. .

The fund reasoned that although there is uncertainty regarding the progress of inflation, a more flexible approach is needed that allows decision-making on the increase of the basic interest rate meeting after meeting.

The Bank of Albania, for its part, has explained that the rapid strengthening of the lek during this year has reflected a constant surplus of currency in the domestic market, as a result of the rapid and strong growth of tourism, foreign direct investments and remittances.

This factor has made it possible to maintain a lower level of the basic interest rate, offering the Albanian economy lower financing costs and easing the financial burden on borrowers.

After a downward trend until May 2023, inflation started to rise again in September, reaching 4.1% from 4% in August.


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