The most recent reduction of the basic interest rate by 0.25% by the Bank of Albania gives some valuable signals for the following developments in the Albanian banking sector and the national economy, said financial markets expert Elvin Meka in a statement for ATA.

He made comments regarding the recent decision of the central bank to lower the basic interest rate for the lek, for the first time in almost two years.

The academician of economic sciences, Meka, said that "the first effect of such a decrease will be the easing of the cost of loans in Lek, which is believed to be transmitted relatively quickly throughout the banking sector".

On the other hand, he continued, a decrease in the cost of the Lek automatically means an almost immediate decrease in the cost of public debt now and in the future, not only for the short term but also for the long term.

Meanwhile, what is read between the lines from this reduction in the basic interest rate is the signaling of a complete 180-degree turn in the monetary policy approach of the Bank of Albania, by the rapid fall in inflation, or more precisely, the strong reduction in its growth rate during the last two months.

The economics professor stated that "it is now clear that the priority of monetary policy is to ensure that the economy does not slip into deflation, which means a more difficult and complex effort to bring inflation to the target".

"With inflation on target and not increasing, the possibilities for further reductions at the end of the third quarter or at the beginning of the fourth quarter are opened," he said, while underlining that basically, such a measure aims to encourage domestic consumption in the economy.

"In summary, this reduction of the base interest rate, more than easing the cost of borrowing and public debt, aims to encourage consumption and discourage savings, which during the last two years saw strong growth, partly due to the growth of strong interest in deposits and other financial instruments in the securities market in Albania,” Meka noted.

The Bank of Albania said for ATA that the decision to lower the base interest rate for the lek by 0.25% to 3% will positively affect the country's economy, through three directions.

According to the central bank, firstly, the reduction of the base rate is expected to provide an easing of financing costs and support the stable growth of credit, which is an important source of financing for economic growth.

Secondly, the bank argues that the reduction of the basic interest rate for the lek goes in the same line as the reduction of the basic interest rate for the euro, undertaken by the European Central Bank. This synchronized movement eases pressures for further appreciation of the local currency; inflation, which is one of the main factors that puts pressure on the decline of inflation in the country.

The Bank of Albania, in the response forwarded to ATA, states that "thirdly, the reduction of the basic interest rate aims to curb any transmission of the rapid fall in inflation in the expectations of economic agents".