The foreign exchange reserve of the Bank of Albania falls slightly, down to 5.6 billion euros

2024-05-03 07:28:00, Ekonomi CNA

The foreign exchange reserve of the Bank of Albania falls slightly, down to 5.6

Illustrative photo

The foreign exchange reserve suffered a slight decline in the first quarter of this year.

According to the statistics of the Bank of Albania, at the end of March the foreign exchange reserve was worth 5.6 billion euros, down by approximately 4.2% since the beginning of the year. However, the value of the foreign exchange reserve remains significantly increasing on an annual basis, with 11.5% more compared to March 2022.

The country's foreign exchange reserve is administered by the Bank of Albania and for the most part

held in debt securities and deposits. At the end of last year, debt securities made up approximately 75% of the reserve assets, while cash deposits made up 17% of it. The remaining part of the reserve is invested in gold and drawing rights (SDR) with the International Monetary Fund.

The foreign exchange reserve is an important instrument to amortize possible shocks, related to both the current account deficit and the high level of Euroization of the financial sector in the country.

Being an economy with a negative trade position, especially in goods, Albania is exposed to situations where securing the necessary currency can be difficult. One of the main criteria in determining the minimum necessary value of the foreign exchange reserve is the achievement of a value sufficient to cover at least four months of imports.

According to foreign trade statistics, the country's foreign exchange reserves covered more than eight months of imports, based on their average value for the first quarter of this year. Also, the foreign exchange reserve can serve as an instrument to support the financial sector with liquidity in foreign currency or to stabilize shocks in the foreign exchange rate.

The increase of the foreign exchange reserve is realized mainly through purchases of foreign currency in the domestic foreign exchange market. The intervention calendar predicts that the amount intended to be purchased through auctions for 2024 will be between 250 million euros and 330 million euros. The Bank of Albania has foreseen a total of 20 auctions for the purchase of foreign currency, which will take place between the months of February and December.

Half of the auctions will be in the spot variant (with purchase on the day of the auction), while half will be of the one-month forward type (with purchase after one month, according to the exchange rate fixed on the auction date). In the last three years, the Bank of Albania has applied forward auctions, as an attempt to promote the use of these agreements in interbank transactions and between private entities.

Last year, the Bank of Albania bought approximately 249 million euros in planned auctions for foreign exchange reserve needs last year. According to official data reported by the central bank, the amount of currency purchased has increased by 75% compared to a year ago.

Meanwhile, in addition to the purchases made in the planned auctions, last year the Bank of Albania carried out two interventions in the market through direct purchases, in order to prevent disturbances in the foreign exchange rate.

The Bank of Albania bought respectively five million euros on June 9 and 12.1 million euros on July 20, the day when the euro touched the historical minimum level in the exchange rate with the Lek. Including the purchases that were intended to curb the further fall of the exchange rate, the Bank of Albania bought a total of 269.8 million euros during 2023.

According to the Government's projections in relation to the 2024 draft budget, during the next three years the foreign exchange reserve is expected to increase by more than 25% and reach almost 7.2 billion euros. /Monitor