The euro falls below the limit of 100 lek for the first time

The exchange rate of the euro has officially fallen below the limit of 100 lek for the first time.

According to the official exchange rate of the Bank of Albania, the European currency was exchanged today for 99.95 ALL, touching a new historical minimum.

Since May, the Bank of Albania has intervened in the currency exchange rate to prevent the European currency from falling below the value of 100 lek. However, despite the direct purchases of the Bank of Albania and its frequent contacts with commercial banks in order not to allow a devaluation of the euro beyond this target, even the barrier of 100 lek was broken today.

The summer season is associated with increased pressures for the devaluation of the euro, due to the peak of the tourist season. The Bank of Albania tried to anticipate this effect at the beginning of the season, conveying a message to the market actors. The central bank had successfully managed to keep the exchange rate above the target level until today.

Although the fall of the euro below the limit of 100 lek has a symbolic significance, the degree of exchange rate fluctuation remains within the levels that can be corrected with the next intervention of the Bank of Albania.

Until now, the central bank has not published information regarding the amount of direct foreign exchange purchases to prevent further appreciation of the lek in the exchange rate.

Historically, seasonal pressures on the exchange rate reach their maximum level between the end of July and the beginning of August, although in the last two years the interventions of the Bank of Albania and several short-term panic waves that have swept the market have somewhat broken the normal dynamics of the market.

The intervention of the Bank of Albania has stopped the pace of the annual decline of the exchange rate. Currently, the euro-lek exchange rate is decreasing by approximately 3.8% compared to a year ago.

The intervention of the Bank of Albania is motivated by the legal objective of inflation. Inflation has been below the target of 3% for several months and in July, according to INSTAT, it was at the level of 2.1%.

In such conditions, the effort of the Bank of Albania to prevent further strengthening of the lek tends to mitigate the disinflationary effect of the exchange rate on the imported component of prices.

Since 2020, the euro-lek exchange rate has fallen by almost 20%. The Bank of Albania estimates that this decrease is mainly due to the rapid growth of the tourism sector and the increase in foreign investments, especially in real estate.

The strengthening of the lek helped the Albanian economy to cope with the inflationary wave of 2022 with milder consequences. Also, the strengthening of the lek is generally considered to have played a positive role in financial stability, increasing the solvency of borrowers in euros, with income in Lek.

However, this strengthening has had obvious negative effects on the exporting sectors of the economy. Fashion has suffered the strongest blow, but the tourism sector has also lost its competitiveness and has been forced to compensate for the drop in the euro exchange rate by increasing prices./Monitor