Algeria's central bank lowers threshold for excessive interest rates to boost credit

The Bank of Algeria has revised the threshold at which loan interest rates are considered excessive, aiming to stimulate bank lending. Previously, rates exceeding the average effective market rate by 10% were deemed excessive; the new regulation cuts this margin to 5%. Economist Brahim Guendouzi explains that this move is intended to encourage credit, especially for small and medium-sized enterprises (SMEs).

The new instruction, issued on June 29, amends the previous 2016 regulation. It stipulates that a loan is considered to have an excessive interest rate if its overall effective rate exceeds the average rate applied by banks and financial institutions for similar operations in the previous semester by more than 5%. This effectively halves the legal tolerance margin for financial institutions.

The regulation covers various credit categories, including overdrafts, consumer loans, short-term, medium-term, and long-term loans, housing finance, and leasing. The central bank had earlier published average rates for the second half of 2025, which serve as the basis for calculating caps for the first half of 2026. For instance, average overdraft rates were 7.51% and 8.26%, while consumer loan rates were 9.42% and 10.36%.

This measure is part of the central bank's monetary easing initiated in 2025, which included lowering the key interest rate and reserve requirements. The goal is to boost credit growth and support economic activity, particularly for SMEs. Guendouzi notes that the policy aims to make financing more accessible to businesses.

While the new rules are designed to protect borrowers from excessively high rates and encourage lending, some analysts caution that tighter caps might reduce banks' willingness to extend credit to riskier borrowers. Nonetheless, the central bank expects the move to accelerate credit flow and support Algeria's economic recovery.