Albania’s central bank kept interest rates unchanged on May 6, saying rising oil and energy prices linked to tensions in the Middle East were expected to push inflation temporarily above target while only marginally slowing economic growth.

The Supervisory Council of the Bank of Albania left the base interest rate unchanged at 2.5%, the overnight deposit rate at 1.5% and the overnight lending rate at 3.5%.

Governor Gent Sejko said the Albanian economy remained resilient despite external pressures, supported by solid domestic demand, strong financial conditions and stable banking sector indicators.

“Based on the available information, the baseline scenario forecasts suggest that the increase in oil and energy prices in world markets will cause a slight and temporary increase in inflation above the target during 2026, as well as a marginal slowdown in the pace of economic growth in the country,” Sejko said at a press conference.

He added that the central bank expected the effects of the shock to be temporary and “not leave long-term traces on the country's development trends,” although uncertainty remained high and risks to inflation were tilted to the upside.

Consumer price inflation averaged 2.5% in the first quarter of 2026, slightly higher than in the previous quarter but still below the central bank’s target. The increase was driven mainly by higher rents and oil prices, while food prices remained relatively stable.

The central bank said the sharp rise in global oil prices in March had already started feeding into domestic inflation, signalling the beginning of a broader transmission to the Albanian economy.

The economy expanded by 3.8% in the fourth quarter of 2025, according to national statistics agency INSTAT, supported by household consumption, private investment and services exports.

Employment and wages also continued to rise, with unemployment falling to 8.3%, the lowest level recorded in Albania’s post-communist era.

“The Albanian economy is facing a supply shock stemming from the increase in oil prices in international markets from a relatively consolidated economic position,” Sejko said.

The bank said relatively rapid wage growth had not yet translated into broader inflationary pressure because some costs had been absorbed by productivity gains and lower business profit margins.

Credit growth also remained strong, with lending to the private sector rising 13.7% year-on-year in the first quarter, supported by low borrowing costs and ample liquidity in the banking system.

The central bank said its forecasts assumed a relatively quick resolution to the Middle East conflict. Under that scenario, inflation would rise temporarily above target before gradually easing back in the medium term.

However, Sejko warned that geopolitical tensions remained a significant risk.

“The Supervisory Council will monitor the situation carefully and continuously,” he said. “Based on new data, it remains ready to react in a timely, appropriate and forceful manner to any material risks to price stability.”