Before the elections, the Bank of Albania resumed foreign exchange purchases to stop the fall of the Euro

The Bank of Albania intervened again in the foreign exchange market in May, to stem the new wave of decline in the Euro-Lek exchange rate.

On May 6, the Euro-Lek exchange rate fell to a new historical minimum, at the level of 97.99 Lek. Sources from the financial market indicate that, as early as the next day, on May 7, the Bank of Albania decided to intervene by buying Euro in the market, in order to prevent a further decline in the exchange rate against the Lek.

The amounts purchased are not made public by the Bank of Albania. They are always published with a delay, in the statements on foreign exchange market interventions, at the end of the following quarter.

Last year, the Bank of Albania purchased approximately 933 million euros in the domestic foreign exchange market, reaching a historical high. The amount of foreign exchange purchased increased by 249% compared to the previous year.

Planned purchases, in order to increase the foreign exchange reserve, actually constituted only a minority of the total amount purchased. Last year, they reached a value of 283.8 million euros, an increase of 14% compared to the previous year.

Meanwhile, direct purchases, aimed at preventing further decline in the Euro-Lek exchange rate, reached a record amount of 649 million euros. For the first time last year, the Bank of Albania undertook a long-term intervention in the foreign exchange market, with the objective of preventing further strengthening of the local currency.

Direct purchases began in May and continued until December, with a temporary interruption in September. The month with the highest value of purchases was October, when the Central Bank purchased 169.4 million euros in the domestic foreign exchange market.

The average Euro-Lek exchange rate last year suffered a 7.4% decline compared to 2023. During November 2024, the euro exchange rate recorded its lowest historical level at 98.11 Lek, while it closed 2024 very close to this value.

In the absence of the Bank of Albania's interventions, the decline in the Euro exchange rate against the Lek would have been even greater.

The Bank of Albania has justified its exchange rate interventions with the pursuit of its inflation target. The strengthening of the Lek against the Euro exerts downward pressure on imported inflation in the economy. For more than a year, inflation has been below the Bank of Albania's 3% target.

Such a situation has also motivated interventions to curb the further decline of the Euro-Lek exchange rate, although in principle the Bank of Albania has emphasized that it remains committed to the free exchange rate regime.

For 2025, the Bank of Albania has planned a total of 22 foreign exchange purchase auctions, between February and December. The estimated amount of purchases is expected to be in the range of 270 and 350 million euros. However, this amount does not include possible direct interventions in the exchange rate, which cannot be predicted. / Monitor