Governor Sejko: Statement to the press conference on monetary policy decision, 5 October 2022

Publication date: 05.10.2022


Dear ladies and gentlemen,

Today, on 5 October 2022, the Supervisory Council of the Bank of Albania reviewed and approved the Intermediate Monetary Policy Report.

The new information analysed in this Report suggests that the supply-side shocks and the heightened uncertainty in international markets are being transmitted in an elevated inflation and decelerated economic growth in Albania. In particular, foreign inflationary pressures, compared to our previous assessments, have turned to be stronger and more stable. In addition, these pressures are spreading across the economy owing to the soaring demand for goods and services, the dynamic labour market coupled with expectations on high inflation rates in Albania.

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 In light of the above, the Supervisory Council deemed that the swift upraise in prices remains the main risk jeopardising both the monetary and financial stability, as well as the sustained and long-term economic growth of Albania.

Against this backdrop, the Supervisory Council decided to continue the normalisation of monetary policy stance. This normalisation aims at establishing the necessary conditions for inflation gradually returning to the target within a reasonable horizon, and at a rather low cost for the domestic economic activity

Below, I will outline today's decision and explain in more detail the rationale behind it.

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Inflation rose further to 7.5% and 8.0% in July and August, respectively. Soaring oil and food prices are still the main contributors driving up inflation. Nevertheless, prices embarked on an uprising trend are spreading across an increasing gamma of goods and services.

The strengthened and broadened inflationary pressures reflect both the accelerated upsurge in international prices and the build-up of domestic inflationary pressures. War in Ukraine drove to a worsened existing global supply bottlenecks and arose new headwinds mainly in the markets of food items, energy and commodities. As a result, prices of these products pushed swiftly up in both global and Albanian markets. In parallel, the strengthened aggregate demand in Albania has underpinned the increased employment and wages, while has added to the domestic inflationary pressures.

The Albanian economy continued to grow in 2022 H1, though the growth momentum slowed down substantially in the second quarter. According to INSTAT data, economic activity in Albania dropped to 2.2%, from 6.5% in the first quarter. The reduced growth rate mainly reflected the rapid decelerated activity in the sectors of construction and industry. Signs of decelerated activity were present across other sectors of economy as well.

From a macroeconomic perspective, this slowdown reflected both the impact from the base effect coupled with the high costs and the heightened uncertainty negative-related effects. These factors drove to a lower growth pace of exports and investments of private sectors, dampened public sector spending and rapid increased imports of goods and services. In contrary, household consumption continued to record stable growth rates.

On a longer-term horizon, the uprising trend of the demand for goods and services has driven to an increasing full utilisation of production capacities in Albania. This trend is particularly present in the labour market, where the unemployment rate dropped to the historical minimum of 11.1% in the second quarter. The heightened demand for work and the lack of labour force are pushing up pressures in wage rises in the private sector. This performance supports the Albanian households’ income in the following period, though it is a premise for inflationary pressures to stay longer.

The external monetary environment continues to remain simulating while the Albanian financial markets continue to remain calm.  The increased policy rate is being transmitted in the financial market, but the interest rates are still simulating ones and close to the historical low levels.  On the other hand, lek exchange rate continues to maintain appreciated positions against the European currency, by absorbing a part of supply-side shock originating from the external market.

In reflection of high demand, still favourable financing conditions and the good banking sector;’ soundness, bank credit has continued to finance consumption and investments. Credit to private sector grew by 13.7% in August, pursing the trend of the recent years. This growth is present across both the enterprise and household segments and has supported the financing of spending and investments, both in lek and foreign currency. The quality of credit portfolio - alongside the increased trend of loans - remains good, as illustrated by the stable low non-performing loans ratio.

The updated forecasts reaffirm our previous assessments that inflation will return to the target in the first half of 2024.  In terms of time dynamics, inflation is expected to stay high in the next two quarters, and come down thereafter.

This forecast factorises the expectations for a progressive decrease of inflationary pressures in the external environment. Also, it calls for monetary policy normalisation to ensuring the control of second-round effects on the Albanian economy.

On one hand, the updated forecasts suggest the Albanian economy will continue to grow over the medium-term horizon, though at somewhat decelerated growth rates. The deteriorated economic outlook in Europe, the negative impact from high prices on the purchasing power of households and the reduced fiscal stimulus will drive to slower household consumption and investments of enterprises thereafter. On the other hand, the high rate of deposits, increased employment and wages, growth of credit and social subsidies are expected to support the balance sheet of private sector.

The available information suggests the balance of risks to the inflation is on the upside while the balance of risks to growth is on the downside.  In particular, the war in Ukraine is the main source to uncertainty, and the escalation of the conflict may drive to higher prices of commodities, disruption of supply chains and lower economic growth, even a negative one, across the region and Europe.


Judging on the above, the Supervisory Council decided to:

  • Increase the policy rate by 0.5 percentage points to 2.25%;
  • Increase the overnight deposit rate by 0.5 percentage points to 1.25%; and
  • Increase the overnight lending rate by 0.5 percentage points to 3.25%.

In the Supervisory Council’s judgement, the gradual normalisation of monetary policy stance, from the quite simulating position in the current form, to a more neutral position, is indispensable to pursue our inflation target of prices. In this view, this normalisation paves the path for the overall economic and financial stability of Albania, the sustainable and long-term growth and the improved social welfare.

In line with our previous communications and our medium-term forecast, the Supervisory Council highlights that the monetary policy normalisation cycle will continue over the coming quarters. The normalisation speed, in any case, will be data-dependent and consistent with our medium-term inflation target.

The Supervisory Council will carefully monitor the situation to assess in a timely manner the implications to inflation performance and identify the adequate measures to be implemented for its effective management.