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The Euro has lost ground again in the exchange rate with the Lek today. According to the official exchange rate of the Bank of Albania, the Euro fell below the limit of 120 Lekë and once again approached the historical minimum level, which had been recorded in May.
The Euro was exchanged on Tuesday at 119.92 Lekë, very close to the value of 119.91 Lekë recorded on May 23 and which represents the lowest level of all time in the Euro-Lek exchange rate.
According to foreign exchange market agents, the supply of Euro in the market is high. The final of the Conference League brought to Tirana tens of thousands of tourists and foreign exchange inflows are estimated to have gradually entered the foreign exchange market in the last two weeks.
Above all, in this market it seems that the seasonal element is becoming more and more vulnerable. With the start of the summer season, inbound tourism and especially the coastal one are influencing the increase of inflows and supply of European currency in the Albanian foreign exchange market.
If we refer to the historical trends of the summer season, it is likely that the depreciation of the Euro in the exchange rate with the Lek will continue further. These data show that the peak of the summer season effect on the foreign exchange rate is usually reached between the end of July and the beginning of August.
If this trend is confirmed this year as well, it is expected that the Euro-Lek exchange rate will further set new declining records; always in case the course is not affected by unforeseen developments.
The high supply of the Euro is also evidenced by the continuous growth of bank deposits in the European currency. According to the Bank of Albania, at the end of April, Euro deposits reached a record figure of 5.57 billion Euros, an annual increase of 19%.
On the other hand, agents say that the demand for Euro continues to be lukewarm. In the first months of this, the effect of rising commodity prices on the country’s trade deficit has been more mitigated. For the period January-April, the trade deficit increased by 6% on an annual basis.
So far, its expansion is significantly lower compared to 2021, when the trade deficit increased by almost 30%.
In recent months, there has been a decline in consumption of some of the goods that have been subject to strong price increases, such as fuel or food basket products.
This may have come as a result of rising prices, but, for some specific items, also because consumers have created reserves over the previous months. The slower growth of the commodity deficit is further easing pressures on the domestic currency exchange rate.
This effect is more pronounced against the Euro, which is the dominant currency in the country’s trade transactions. The strong lek is also emerging as a shock absorber to imported inflation, partially mitigating imported inflation in the Albanian economy.
The strengthening of the Lek against the Euro favors the importing entities of goods and services that buy in Euro and sell in Lek, but also the entities that provide income in Lek, while having liabilities in Euro, such as foreign currency borrowers.
Since last year, there is a rapid revival of lending in Euro, which continues with high rates this year. Data from the Bank of Albania show that in the last four months the banking sector provided 365 million Euros in new loans, a record figure for at least the last seven years. Compared to the same period last year, new credit in Euro increased by almost 57%, an increase significantly higher than the average growth of 37% of new credit in total, for the same period.
The high growth of deposits in Euro, low interest rates and, already, the strong positions of the Lek in the exchange rate can make lending in Euro even more attractive for Albanian households, especially in loan products for the purchase of real estate. .
On the other hand, the depreciation of the Lek has a short-term negative impact on exporters of goods and services or on entities that have savings in Euro and expenditures in Lek. Further appreciation of the Lek may somewhat slow down the growth rates of exports.
According to Instat, for the 4 months 2022, Albanian exports increased by about 49%, where a high impact was given by the increase in the price of raw materials and construction materials./Monitor
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