BoA lowers base interest rate as Governor promises steps to depreciate ALL

With an unexpected decision, Bank of Albania’s Supervisory Council decided to lower the key interest rate to 1% by setting a historic record for Albania.

Governor Sejko argued the decision with the rapid strengthening of the ALL against the euro, making it even more difficult for Bank of Albania to bring inflation back to the 3% target.

The decline of the key interest rate, in theory, is a measure that can directly affect the exchange rate.

The reduction of the key interest rate increases the money supply in Lek and may lead to the depreciation of the domestic currency.

Sejko also announced an intervention in the foreign exchange market for the euro, which is expected to bring about an appreciation of the European currency vis-a-vis ALL.

Sejko did not offer any details about the measures that these operations would produce, but it should be said that starting from the previous year Bank of Albania has been buying euros in considerable amounts in order to increase the foreign exchange reserve.

Until now, these purchases have failed to prevent the weakening of the euro.

The next intervention may be larger in order to provide a rapid impact on the exchange rate.

However, in addition to the direct impact of the intervention, perhaps the most important may be the psychological effect of the impact of this movement on the actors operating in the market.

After many days in decline, the euro was slightly strengthened and switched Wednesday at the value of ALL 124.42.

This may be the first effect of the intervention of the Bank of Albania in the market.

In recent weeks, there has been a growing pressure from exporting businesses, but also by the opposition, who have urged measures that would curb the euro’s downfall.

Governor Sejko reminded once again that his institution backs the free exchange rate and that this is an extraordinary intervention, only in view of the inflation target, a statement that implies that

Bank of Albania has not been influenced by external pressures in this decision.

SCAN

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