Rates Heading Higher

At the meeting of its supervisory board on June 27, the Bank of Albania (BOA) raised its key repo rate by 25bps to 5.75%. Governor Ardian Fullani said that the move was designed to 'recalibrate monetary conditions in the economy'. We think that the move is a good pre-emptive move considering that CPI came in at just 1.4% y-o-y in May, down from 1.9% y-o-y in April. In part, the ongoing eurozone tightening cycle will have played a role, given that the BOA needs to keep an interest rate differential in place to prevent an upswing in capital outflows. Further rate hikes, perhaps as much as 100bps, could be on the cards over the next eighteen months.

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