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The euro is at a historic low, falling below 112 lek

2023-04-24 15:35:02Biznes SHKRUAR NGA REDAKSIA VOX
The euro is at a historic low, falling below 112 lek
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The euro started this week with a further drop in the exchange rate with the lek, dropping for the first time below the limit of 112 lek and registering a new historical record. According to the official exchange rate of the Bank of Albania, the euro was exchanged on Monday at 111.81 ALL.

Agents of the foreign exchange market say that the fall of the euro to unprecedented levels is related to the very high supply of the European currency, which can be explained by several factors. It is estimated that income from inbound tourism has a tendency to increase as we enter the second quarter of the year. April's religious holidays may also have brought a further increase in inflows due to returning migrants. Another factor that, according to market agents, can affect the exchange rate is the campaign for the local elections in May.

In theory, it would be expected that the elections would have a greater impact on the depreciation of the local currency, as a result of the supply from the increase in public spending during the months before the elections. But, in fact, such an effect is not being seen, the opposite is even happening. Agents estimate that the periods before the elections are accompanied by increased flows of foreign currency and mainly euros, so it can be assumed that the campaign is playing its own role in increasing the inflows of the euro and in its devaluation.

Proof of the very large inflows of the euro is the fact that the devaluation of the euro is not being stopped even by the purchases of the Bank of Albania, in significant amounts. In the last two weeks, the Bank of Albania has bought more than 25 million euros in the domestic market, for the needs of foreign exchange reserve administration. And yet even this has not stopped the continuous devaluation of the European currency.

Although exchange rate experts estimate that informal flows have an important role in the devaluation of the euro against the lek, in fact this tendency in the long term is also supported by the movements of macroeconomic balances. According to data from the Bank of Albania, the current account deficit for the past year decreased to 1.08 billion euros, down 7.5% compared to 2021. The decrease in the current account deficit has come mainly thanks to the increase in income from tourism, from the export of services and from the increase in remittances of immigrants. In real terms, the Bank of Albania underlines that Albania's current account deficit has been reduced from 10.8% of GDP in 2014 to 5.9% of GDP in 2022.

Given the large inflows of the euro and the further emphasis of the seasonal effect in the summer months, agents think that the fall of the euro against the lek will most likely continue.

The devaluation of the euro is helping to reduce inflation, which in Albania even at its peak, last year, was at significantly lower levels compared to the countries of the region and the EU. One of the factors is estimated to have been precisely the strengthening of the lek against the euro. The devaluation of the euro by more than 7% compared to a year ago may also favor the outbound tourism of Albanians abroad.

But, on the other hand, the unprecedented fall of the euro is increasingly damaging businesses exporting goods and services, which provide income in foreign currency, but carry out most of their expenses in Lek./Monitor

The euro is at a historic low, falling below 112 lek


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