The Supervisory Council of the Bank of Albania decided on Wednesday to reduce the basic interest rate from 3% to 2.75%.

This is the second reduction of the base rate for this year, after the first reduction at the beginning of July. The governor, Gent Sejko, said after Wednesday's meeting that the balance of risks on inflation is on the lower side in the short term, so the Supervisory Council deemed it necessary to ease the stance of monetary policy. The Supervisory Council of the Bank of Albania reviewed and approved the Quarterly Monetary Policy Report.

The new information analyzed in the report suggests that the Albanian economy and the main indicators of economic, monetary, and financial stability are on a positive development trend, the governor said, adding that the economic activity has experienced solid growth over the first three quarters of the year, inflation rate stands at low levels, public debt, and external debt have declined, and balance sheets of the banking sector remain sound, while lending is edging up progressively.

In the Supervisory Council’s view, the monetary policy implemented by the Bank of Albania has provided an important positive contribution to this performance. The gradual and prudential normalization of the monetary policy stance enabled the control and reduction of inflation, after the price-related shock springing from the international market throughout 2022, without undermining- at the same time - the positive development trend of Albania and its financial stability.

This new information has resulted, overall, in line with our expectations, though economic growth has been on the upside and inflation level on the downside. The updating of our forecasts has not led to any change in the projections for the future.

“Overall, we expect economic growth to continue on the positive track and inflation to return gradually to the target in the next year,” Sejko said.

The Supervisory Council decided to lower the policy rate by 0.25 percentage point, down to 2.75%, from 3%; lower the overnight deposit facility by 0.25 percentage point, down to 1.75%, from 2%; and lower the overnight lending facility by 0.25 percentage point, down to 3.75%, from 4%.

“The Supervisory Council deemed that this movement will establish more adequate monetary conditions for controlling the impact that short-term supply-side shocks might have on inflation in the future. This decision displays the willingness of the Supervisory Council to react in a timely and symmetric manner against inflation movements both on the downside and up side of the target, in addition to concurring with our previous communications to follow a data-dependent monetary policy,” the Governor said.