The Bank of Albania left its base interest rate unchanged at 2.5%. However, the institution warned that intensifying inflationary pressures could make monetary policy tightening necessary in the future.
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At its meeting on October 7, the Supervisory Council also left unchanged the rates for the overnight deposit, at 1.5%, and the overnight loan, at 3.5%.
Governor Gent Sejko said that the current monetary policy remains appropriate. However, he said that rising inflation and risks, mainly related to developments abroad, had increased the possibility of a tightening step in the future.
“The Supervisory Council emphasizes that the increase in inflationary pressures and the presence of upside risks to our forecasts strengthen the case for a tightening response in the future stance of monetary policy,” Sejko said.
A decision in this direction would lead to an increase in the base rate. The Bank has not given a possible date for such a step and explains that decisions will be based on new data on inflation and price pressures, as well as fiscal policy and exchange-rate developments.
The warning comes after inflation accelerated during the summer. The average for July and August was 3.3%, rising somewhat faster than the Bank of Albania had forecast.
Increased pressures have come mainly from foreign markets, where oil, energy, food and other basic commodities have become more expensive. The central bank also links these developments to the escalation of geopolitical tensions in the Middle East.
In Albania, fuel and unprocessed food had the main impact on the increase in inflation in July and August. Meanwhile, inflation in services and rents declined.
The strengthening of the lek has limited some of the impact of foreign prices, but has not fully offset price increases in international markets and inflation in trading partner countries. As a result, imported inflation has increased.
The Bank forecasts that inflation will record a slight increase over the next two quarters, which is expected to be moderate and temporary. From mid-2027, it is projected to begin declining gradually toward the institution’s target.
Developments in the domestic market are also putting pressure on prices. The labor market remains tight and wages are rising at a rapid pace.
In the second quarter of 2026, unemployment fell close to its historical low, to 8.3%, employment in the non-agricultural private sector increased by 2.3%, while the average wage rose by 11.5%.
Economic growth remains solid. Gross domestic product expanded by 3.6% in the second quarter, driven mainly by consumption and investment. The expansion was supported particularly by construction and services, while industry and agriculture continued to contract.
The Bank of Albania has revised up its forecasts for economic activity and expects growth going forward to be somewhat higher than previously estimated.
Credit to the economy is growing rapidly. During July and August, the loan portfolio for the private sector expanded by 15.4% year on year.
Businesses are using the financing for investment, households for home purchases and consumption, while the shift toward the domestic currency is increasing.
Meanwhile, the quality of loans in the banking sector has improved further. Non-performing loans account for 3.7% of the portfolio, the lowest level since the global financial crisis, according to the Bank of Albania.
Although economic indicators are positive, the main uncertainty, according to the Bank, stems from international developments.
Tensions in the Middle East could further increase energy and commodity prices, adding to inflationary pressure in Albania. Another risk to prices is posed by labor shortages and rapid wage growth.
The base rate currently stands at 2.5%. The message from the October meeting is that if price pressures continue or intensify, the Bank of Albania does not rule out a return to raising interest rates.
