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Hot spring for the lek, the Albanian currency close to the historical record

Politiko 2024-04-15 16:41:00

The Albanian currency started the week with a further strengthening against the euro and the dollar on Monday, April 15, marking historic lows and signaling that the appreciation pressures already noted for years, continue to be in play. The euro was exchanged on Monday at 100.78 ALL while the dollar was exchanged at 94.58 ALL according to the average fixed exchange rate published by the Bank of Albania. Since the beginning of this year, the lek has fluctuated within a narrow band, from 100.78 to 104.5 lek per euro, with a 14-week average of 103.6 lek, while the last week has marked further strengthening.

The unusual performance of the national currency thus challenges the typical seasonal developments established over the decades, since the winter months have historically been periods of downward pressure on the lek due to increased imports, trade deficits and the withdrawal of profits from foreign direct investments. such as banks or mobile companies, which at this time of the year close the balances and transfer the balances to the countries of origin.

In fact, the foreign trade data for the first two months of this year suggest that the seasonal effect of the increase in the trade deficit is in force this year as well. According to data published by INSTAT, the trade deficit for January and February reached 72 billion ALL (about 720 million euros) with a 53% increase compared to the same period a year ago. Data on the outflow of foreign currency in the form of repatriation of profits are not yet available, but indirect data, such as rising mobile phone prices or declared bank profits (on historical record), suggest that this seasonal phenomenon is also present

The tourism sector, which may explain some of the extra currency in the market, does not seem to help much in this regard. Indeed, the number of foreign tourists who entered Albania during the first two months of this year has increased by 49% on an annual basis, reaching over 1 million people, but at the same time, the number of Albanian citizens who have traveled abroad, and consequently spent euros, increased to 1.15 million people, according to INSTAT. In short, the additional euros that should have come to Albania from foreign tourists have been compensated to a significant extent by the additional euros that Albanians have spent abroad.

The unusual strengthening of the lek started in 2016, when the euro cost 140 lek, while it accelerated during 2023, when the lek jumped from 113 lek to the euro at the beginning of the year, to 104 lek at the end of the year. It is assumed that the free exchange rate is self-adjusting. In short, as the lek strengthens, imports become cheaper and exports more expensive, and therefore the trend must at some point reverse itself. And logic dictates that the more the lek strengthens, the closer we must be to the point when cheap imports begin to eat away at the excess currency in the market. This is not happening anyway, at least not now./BIRN