The Bank of Albania stops the "rollover" of the euro, it is keeping the exchange rate close to the limit of 100 lek

2024-05-23 09:48:00, Ekonomi CNA

The Bank of Albania stops the "rollover" of the euro, it is keeping

Illustrative photo

For weeks, the exchange rate between the euro and the lek has been maintaining an unusual stability compared to the trends of recent years.

According to the official exchange rate of the Bank of Albania, on Wednesday the euro was exchanged for ALL 100.32, which represents the lowest historical level of the exchange rate between the two currencies.

However, since the beginning of May, exchange rate fluctuations have been small and the rate of depreciation of the euro has been significantly slowed down.

This stability is not very typical for this period of the year, when the increase in foreign exchange flows from tourism generally leads to a further strengthening of the local currency.

According to sources from the foreign exchange market, the stabilization of the exchange rate near the level of 100 lek is due only to the intervention of the Bank of Albania, which is regularly buying currency, with the aim of artificially keeping the exchange rate at these levels.

Apparently, at the moment the central bank does not want to allow the exchange rate to fall below the level of 100 lek, which somehow represents an important symbolic and psychological limit.

According to the actors of the foreign exchange market, foreign exchange flows in the market are high and in the absence of intervention by the Bank of Albania, the euro would definitely have dropped below the limit of 100 lek.

Legally, Albania has a free exchange rate regime. However, in special cases, the Bank of Albania can intervene in the exchange rate, to avoid disturbances in the foreign exchange market or when such an intervention can be justified in terms of the inflation objective.

In fact, for months inflation has been continuously decreasing and in April of this year it dropped to 2.1%, the lowest level in almost three years.

After the last meeting of the Supervisory Council, Governor Sejko said, however, that this rapid fall in inflation will be temporary and that it is due to supply factors, mainly the reduction in the prices of imported goods, but also the strengthening of the lek in the exchange rate exchange.

However, an inflation below the target of 3% in theory creates space for the central bank to intervene in the direction of devaluation of the local currency, withdrawing currency from the market and increasing the money supply in lek. Basically, this is what the Bank of Albania is doing in the current situation.

Although the prevention of the fall of the euro-lek exchange rate can be justified with the legal objective of inflation, in fact the main motivation of such an intervention seems to be the protection of those segments of the economy that have income in foreign currency.

This includes the exporting sectors of goods and services, but also families dependent on remittances and other individuals who, for various reasons, have a salary or other income in foreign currency.

A further drop in the exchange rate would further damage the competitiveness of export industries, but also of the tourism sector, which has been growing at very high rates in recent years.

For this reason, the Bank of Albania has probably judged that it is necessary to maintain a balance between the free exchange rate and the interests of the economy. At the moment, it seems that this balance has been found close to the limit of 100 lek. However, it is clear that downward pressures on the euro exchange rate will increase further over the coming months.

The Bank of Albania will be faced with the dilemma of whether it should increase currency purchases even more to keep the exchange rate stable, or allow a further, partially controlled fall of the euro./ Monitor