Albania’s interest rate decision on November 5, 2025, held the policy rate steady at 2.50%, unchanged since August 6, 2025. This marks a departure from the previous tightening cycle where rates peaked at 2.75% between December 2024 and May 2025. The decision reflects a cautious approach amid stable inflation and moderate growth, balancing inflation control with economic support.

Drivers this month

• Inflation steady at 2.30% YoY, close to the 2.50% target.
• GDP growth moderating to 3.10% YoY from 3.50% in Q2 2025.
• Unemployment stable at 11.20%, with slight improvement in youth employment.

Policy pulse

The 2.50% rate aligns with the Bank of Albania’s inflation target band of 2-3%. The pause signals confidence in current monetary conditions, avoiding premature tightening that could stifle growth.

Market lens

Immediate reaction: The Albanian lek (ALL) appreciated 0.30% against the euro in the first hour post-announcement, reflecting market approval of policy stability. Short-term government bond yields remained flat, indicating steady investor sentiment.

Core macroeconomic indicators underpin the interest rate decision. Inflation remains contained, while growth and labor market data suggest a balanced economy.

Inflation and growth

Consumer Price Index (CPI) inflation held at 2.30% YoY in October 2025, slightly below the 12-month average of 2.50%. This contrasts with 3.10% inflation recorded in the same month last year. GDP growth slowed modestly to 3.10% YoY in Q3 2025 from 3.50% in Q2, reflecting global demand softness and domestic consumption moderation.

Labor market

Unemployment edged down to 11.20% in Q3 2025 from 11.50% a year earlier. Youth unemployment improved to 22.40%, signaling gradual labor market recovery. Wage growth remains moderate at 3.00% YoY, supporting stable consumption without overheating.

Fiscal stance

The government budget deficit narrowed to 3.80% of GDP in Q3 2025, compared to 4.50% in 2024. Fiscal consolidation efforts continue, with public debt stable at 65% of GDP. This prudent fiscal policy complements monetary stability.

Interest rate trajectory

The Bank of Albania’s rate peaked at 2.75% in May 2025, after a series of hikes starting December 2024. Since August, the rate has stabilized at 2.50%, reflecting a wait-and-see approach amid mixed economic signals.

Inflation vs. policy rate

Inflation’s recent moderation below the 2.50% target midpoint reduces urgency for further tightening. The stable rate supports continued economic recovery without risking inflation overshoot.

Market lens

Immediate reaction: The ALL strengthened modestly post-decision, while 2-year government bond yields held steady near 3.10%. Breakeven inflation rates remained anchored around 2.40%, signaling market trust in the central bank’s inflation targeting.

Looking ahead, Albania’s monetary policy faces a complex environment shaped by domestic fundamentals and external uncertainties. We outline three scenarios for the next 12 months.

Bullish scenario (30% probability)

• Inflation remains subdued below 2.50%
• GDP growth rebounds above 3.50%
• Monetary policy stays on hold or eases slightly
• Fiscal consolidation continues, improving investor confidence

Base scenario (50% probability)

• Inflation hovers near target at 2.50%
• Growth stabilizes around 3.00-3.20%
• Interest rates remain steady at 2.50%
• External shocks contained, moderate fiscal tightening

Bearish scenario (20% probability)

• Inflation spikes above 3.50% due to energy or food price shocks
• Growth slows below 2.50% amid geopolitical tensions
• Central bank forced to hike rates above 2.75%
• Fiscal slippage increases debt risks

Risks and opportunities

Upside risks include stronger tourism and remittance inflows boosting growth. Downside risks stem from global commodity price volatility and regional geopolitical instability. The central bank’s flexibility will be key to navigating these challenges.

Albania’s decision to maintain the interest rate at 2.50% reflects a balanced monetary stance amid stable inflation and moderate growth. The pause follows a tightening phase that successfully contained inflationary pressures. Fiscal prudence and improving labor market conditions support this cautious approach.

External risks remain a wildcard, but current financial market sentiment and macro indicators justify the central bank’s wait-and-see policy. Investors should monitor inflation trends and geopolitical developments closely, as these will shape Albania’s monetary trajectory in 2026.

Overall, the Bank of Albania’s steady hand provides a foundation for sustainable growth while guarding against inflationary shocks.

Insight: Interest Rate vs. ALBEX Index Since 2020

Since 2020, the Bank of Albania’s interest rate changes have shown a moderate inverse correlation with the ALBEX equity index. Periods of rate hikes, such as late 2024, coincided with short-term equity pullbacks, while rate pauses or cuts supported market rallies. This relationship underscores the sensitivity of Albanian equities to monetary policy shifts, highlighting the importance of central bank signals for investors.

FAQs

What was the latest interest rate decision for Albania?

The Bank of Albania held the interest rate steady at 2.50% on November 5, 2025, maintaining the level since August 2025.

How does the interest rate decision impact inflation?

Maintaining the rate at 2.50% supports stable inflation near the 2.50% target, balancing growth and price stability.

What are the main risks facing Albania’s monetary policy?

Key risks include external shocks such as commodity price spikes and geopolitical tensions that could force rate hikes or slow growth.

Takeaway: Albania’s steady interest rate at 2.50% signals confidence in current economic conditions but requires vigilance against external risks that could disrupt this balance.

This has been drafted with AI assistance and then thoroughly reviewed, refined, and approved by our human editorial team to ensure accuracy, and originality.