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Loans to become more expensive, BSH increases the yield of 12-month bonds to the highest level since May

2023-11-15 09:53:26Biznes SHKRUAR NGA REDAKSIA VOX

Loans to become more expensive, BSH increases the yield of 12-month bonds to the

The increase in the basic interest rate by the Bank of Albania at the beginning of this month has also been followed by the increase in the yield of 12-month treasury bonds.

In the auction conducted on Tuesday, the weighted average yield of these instruments increased to 3.31%, from 3.1% that had been in the last auction, conducted at the end of October. 12-month bond yields rose to their highest level since May this year.

Market demand in the last auction was significantly lower compared to previous auctions. Of the 9 billion ALL that was the amount announced for financing by the Ministry of Finance and Economy (MFE), a total of requests for approximately 8.3 billion ALL were presented at the auction. Finally, MFE accepted requests in the amount of about 8 billion ALL.

In the event that all requests were accepted, the average yield of the issue would be slightly higher, at the level of 3.34%. Such a yield would bring almost full tracking of the base rate increase to the 12-month bond yield.

On November 1, the Supervisory Council of the Bank of Albania increased the base interest rate from 3% to 3.25%. This was the first increase applied by the Central Bank since March of this year.

The inhibition of interest rate increases by the Bank of Albania for most of 2023 caused 12-month bond yields to suffer a continuous decline until the end of the second quarter of 2023, while during the third quarter the performance theirs had been stable, very close to the level of the base interest rate.

However, even with the increase in this week's auction, the difference between the base interest rate and the 12-month bond yield remains at historic lows.

The statement of the Supervisory Council at the beginning of this month has created the expectation that interest rates may now be heading towards a cycle of growth, to get closer to their neutral level, estimated in the range of 4.25%-4.5%. The decision came as a result of still high inflationary pressures and expectations for an increase in the fiscal impulse in the economy during the last months of 2023.

Inflation in October dropped to 3.8%, the lowest level in a year and a half, but, however, according to the Bank of Albania, risks remain high, related both to the external economic environment and to the high pressures that the market of labor is exerting on wages and production costs.

If this cycle of base rate hikes continues in the coming months, the interim period of relatively relaxed monetary conditions is expected to end soon. This will translate into higher financing costs for the government and the private sector, but on the other hand, higher interest rates for the savings of Albanians.

 


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