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The Euro to Lek exchange rate broke a new downward barrier today.
According to the official exchange rate of the Bank of Albania, the Euro fell for the first time in its history below the level of 117 Lek and was exchanged for 116.97 Lek.
In this period of the year, the increase in the Lek price was expected, due to the usual seasonal element, especially related to tourism. The peak of the tourist season is accompanied by an increase in the flow of Euros into the Albanian economy, affecting the devaluation of the European currency against the Lek. But, this year, the seasonal effect started on an even lower base of the Euro-Lek exchange rate, breaking new downward records day after day. Compared to the same period a year ago, the Euro-Lek exchange rate has decreased by 4.5%.
Foreign exchange agents have explained the unusual strengthening of the Lek since the end of last year with the rapid growth of tourism, exports and remittances after the pandemic, which have led to the improvement of the Balance of Payments (especially in the first quarter of 20222), but also with high flows from informal or criminal activities.
The strong lek in a period of high inflation helps to partially amortize the increase in prices from foreign markets. Since Albania imports goods and services mainly in Euros, the strengthening of the Lek has partially mitigated the increase in their prices. According to the analyzes of the Bank of Albania, inflation would certainly have been higher, in the absence of the strengthening of the Lek against the Euro. The devaluation of the Euro positively affects the imports of services and especially the tourism of Albanians abroad.
But, on the other hand, the fall of the Euro has a negative impact on the exporting sectors of the economy, and especially on the fashion sector, because their income, converted into Lek, shrinks.
The appreciation of the Lek has significant impacts on the financial sector’s balance sheets, reducing the equivalent value of assets and liabilities in the European currency. This means a slowdown in the growth rates of loans and deposits in the banking system.
Foreign currency borrowers with income in Lek are favored, because they are buying the currency more cheaply to repay loan installments, while individuals with savings in Euros are experiencing a decrease in their value, expressed in Lek.
The Lek gained significant ground today also in the exchange rate with the US Dollar. The American currency went down to the level of 115.28 Lek, down by 1.44 points compared to the last week’s values. The exchange rate between the Dollar and the Lek reflects to a more or less proportional extent the movements of the exchange rate between the Dollar and the Euro. In the first part of July, the Dollar reached parity with the Euro for the first time. Even, at some moments the Euro fell below the value of 1 US Dollar. This was reflected in the appreciation of the Dollar against the Lek up to the level of 117.51 Lek, the highest level since 2017.
In continuation, the Euro has easily regained ground. Today, the European currency stood at approximately 1.02 dollars. This has caused the USD-LEK exchange rate to suffer a slight downward correction. Although the dollar has a lower weight in Albania’s commercial exchanges, the exchange rate of the American currency remains important in relation to the trading of raw materials, which are generally quoted in this currency. USD exchange rate movements impact the imports and exports of these products and especially the selling prices of fuel in the country.
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