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The foreign exchange reserve exceeds the limit of 6 billion euros

2024-12-02 11:52:00, Ekonomi CNA

The value of the foreign exchange reserve of the Bank of Albania has for the first time exceeded the limit of 6 billion euros, reaching a new historical record.

According to the statistics of the Central Bank, at the end of October, the value of foreign currency reserve assets reached 6 billion and 15 million euros, increasing by 6.3% compared to the same period a year ago.

The increase in the foreign exchange reserve this year, among other things, reflects the record purchases of foreign currency by the Bank of Albania in the domestic foreign exchange market. Only in the first half of this year, the Bank of Albania bought almost 272 million euros in the foreign exchange market.

According to the information published by the Central Bank, for the first 6 months, a total of 134.2 million euros were purchased in the auctions planned for the needs of the foreign exchange reserve, while even more, 137.6 million euros, were purchased through direct operations, in order to avoid further strengthening of the lek in the foreign exchange rate.

Direct purchases continued at the beginning of the third quarter, in July, while they were temporarily stopped in August. However, after October, the Central Bank again started direct purchases of foreign currency, but in smaller amounts.

Since the beginning of May, the month when the Bank of Albania started direct purchases in order to prevent further decline of the euro-lek exchange rate, the value of the foreign exchange reserve has increased by 571 million euros or 10.5%.

In parallel, the Bank of Albania has followed the program of planned purchases through auctions. 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. However, including the direct purchases made by the Bank of Albania, it is already estimated that the upper limit of 330 million euros has already been exceeded.

In the last statement for Albania, the mission of the International Monetary Fund (IMF) requested from the Bank of Albania careful evaluations regarding interventions in the foreign exchange market. According to the IMF, such interventions should consider the costs and benefits of further foreign reserve accumulation, including risks to the central bank's balance sheet, as well as implications for monetary policy transmission and financial market development.

However, the value of the foreign exchange reserve is not only determined by the purchase flows, but also by the movements of the financial markets and the value of the investment instruments of the reserve, such as financial securities or monetary gold.

At the end of the year in October, debt securities accounted for approximately 71% of reserve assets, while cash deposits accounted for nearly 20% of it. During the last months, the Bank of Albania has reduced investments in securities, while significantly increasing the part of the reserve held in the form of deposits. 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, the lack of currency at specific moments can create problems for economic activity in the country./ Monitor Magazine