Is the Euro returning to normality? It reaches close to the level of 102 lek

The Euro to Lek exchange rate has partially recovered in the last two days.

According to the official exchange rate of the Bank of Albania, the Euro was exchanged on Wednesday at 101.75 ALL, increasing by 0.72 ALL compared to Tuesday.

The Euro exchange rate reached its lowest annual level on Monday, going down to the level of 100.78 ALL. As has usually happened in recent years, the rapid decline was followed by a rapid recovery and the Euro regained roughly a point.

The growth of the Euro in the last two days has temporarily pushed up other currencies as well. The American dollar was exchanged today at 95.62 ALL, increasing by 0.5 ALL compared to yesterday. The British pound reached the value of 119.22 lek, increasing by 0.87 lek compared to the previous day.

However, experts believe that the strong fluctuations of the exchange rate will be short-term.

Beyond these fluctuations, the local currency exchange rate continues to show a long-term appreciation trend. Compared to a year ago, the Euro-Lek exchange rate is down by approximately 10%.

Expectations for the second and third quarter of the year remain in favor of a strong Lek, supported by growing foreign exchange flows related especially to tourism.

Indirect data show that the number of foreign tourists is growing rapidly even in the first months of this year. According to INSTAT, for the period January-February, the arrivals of foreign citizens increased by 41% compared to the same period a year ago.

Last year, the current account deficit touched the lowest historical value for 2023, in the amount of 191 million euros, with a 78% decrease compared to 2022.

Services and tourism in particular provided the main effect. Statistics showed that the net income in the travel item of the Balance of Payments was worth 1.84 billion euros, an increase of 72% compared to 2022. Moreover, the record value of foreign direct investments, of almost 1.5 billion euros, has exceeded by more than seven times the value of the current account deficit. This shows that the foreign exchange flows entering the economy have been greater than the outgoing ones, which has reduced the exchange rate of the Euro to the lowest historical levels.

The increasing exports of services are expected to bring a high foreign exchange supply to the market during the coming months.

However, this year, perhaps the scope for an intervention by the Bank of Albania in the foreign exchange market is greater, given the low inflation. If inflation continues to fall below the target, the Bank of Albania may consider intervening to devalue the local currency, withdrawing currency from the market and increasing the Leka money supply.