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Elections increase currency supply, Euro hits new historical low, falls below 98 lek

Politiko 2025-05-06 13:32:07

Elections increase currency supply, Euro hits new historical low, falls below 98

The Euro has fallen again in exchange rate with the Lek today, simultaneously dropping to its lowest level of all time, since it emerged as a physical currency in 2022.

According to the official exchange rate of the Bank of Albania, the European currency was exchanged for 97.99 lekë, further decreasing by 0.21 lekë compared to yesterday. Over the last 30 days, the Euro has lost approximately 1.3 lekë or about 1.3% in the exchange rate against the Lek.

If we look at the data for the last four years for the same time horizon, the depreciation of the Euro against the Lek seems in line with historical trends. Last year, in the same 30-day interval, the Euro depreciated by approximately 1.9%, in 2023 by 1.7% and in 2022 by 0.9%.

The approach of the summer season brings an increase in tourist visits to the country, with a growing concentration especially during weekends, thereby increasing foreign exchange inflows. However, agents do not rule out that the last days of the election campaign have also influenced an increase in foreign exchange supply and exchange.

The foreign exchange market seems to be showing a trend of appreciation of the local currency this year, which is stronger as the summer season approaches. Agents point out that the tourist season is now more extended in time and its effects on the exchange rate are much less concentrated in the July-August period.

Another important source of foreign exchange in recent years has been foreign investments in real estate. These investments have led the structure of foreign direct investments in the last three years.

Market data shows that the real estate market continues to show satisfactory demand, with non-resident buyers playing an important role, especially in coastal areas. According to the Bank of Albania's periodic survey, in the second half of 2024, housing prices increased by 44.5% on an annual basis.

On the other hand, the tight fiscal policy, with large surpluses, of recent years tends to tighten the supply of Lek over the months, adding to the pressure for appreciation of the local currency. By the end of the quarter, the budget was again in significant surplus, at the value of almost 34 billion Lek, with a further increase of 4% compared to the same period a year earlier.

The performance of recent weeks indicates that, most likely, the downward pressures on the Euro exchange rate will continue in the coming months. Last year, these pressures were absorbed through large and unprecedented purchases by the Bank of Albania.

The Central Bank purchased approximately 933 million euros in the domestic foreign exchange market in 2024, at the highest historical value. The amount of foreign exchange purchased increased by 249% compared to the previous year.

With inflation continuing to remain below the 3% target, it is reasonable to expect the Bank of Albania to intervene again, should the decline in the Euro-Lek exchange rate continue./ Monitor

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