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The lek is continuing to strengthen in the exchange rate with the euro this week as well.
According to the official exchange rate of the Bank of Albania, the euro was exchanged on Wednesday at 120.5 Lekë, down by 0.4 points compared to the previous day.
Already, the euro exchange rate has fallen very close to the lowest levels of the last 15 years, which were recorded in December 2021. On December 28, 2021, the Euro was exchanged at 120.36 Lekë, marking the lowest level since 2007.
For months, the Albanian economy is also facing a strong rise in prices of goods from abroad, which is accompanied by high levels of inflation in imported. The increase in imports has had a significant impact on the growth of the external deficit. Data from the Bank of Albania showed an increase in the current account deficit in the last quarter of 2021 by 56% on an annual basis.
At least for foreign trade of goods, this trend has continued in the first quarter of this year. According to INSTAT, the trade deficit for the period January-March expanded by 6% compared to the same period a year earlier.
Given the external deficit trends, such a strong position of the lek in the euro exchange rate at first glance is difficult to explain. This finding is also shared by foreign exchange agents. They say that, in general, the market is showing little demand to buy euros, which is somewhat unexpected, especially for the importing sectors of the economy, which in recent months have faced the need for more foreign currency, due to growth of prices.
However, experts do not rule out that there may be an abnormal depreciation component in the performance of the euro exchange rate, by large actors, mainly large commercial banks.
Soon, the group of the Distribution System Operator (OSHE) is expected to make the next purchases in the foreign exchange market for the needs of energy import contracts. Sources say that the purchases can reach a value of up to 40 million Euros.
Because of this expectation, one hypothesis may be that high market power actors are trying to shift the downtrend in order to gain more from spreads as demand increases due to of OSHE purchases. This factor is expected to bring an increasing correction of the Euro exchange rate with the Lek in the coming weeks.
In early March, OSHE’s high demand caused a strong appreciation of the Euro in the foreign exchange rate, which reached almost 5% in the space of a week. But, after the intervention of the Bank of Albania through the sale of foreign currency, the market calmed down quickly and then the Euro exchange rate gradually returned to decline, until this week it has reached almost the last levels of 2021.
Sources from the banking sector, in fact, confirm that 2-3 large banks in recent days have held positions in the sale of foreign currency, which explains the tendency of the devaluation of the Euro.
Another factor that in theory supports the strengthening of the lek is the difference in key interest rates. Last month, the Bank of Albania increased the lek base rate to 1%, while for the euro the reference rate of interest of the European Central Bank is still at zero. In developed markets the difference in the key rate plays an important role in the exchange rate between currencies.
But, in the Albanian foreign exchange market, experts think that this factor does not play a very big role. According to them, so far there is no obvious tendency of shifting savings to Lek, in order to ensure greater returns on financial investments.
On Wednesday, the Lek gained points in the exchange rate with most other major currencies. However, the exchange rate of the Lek with these currencies is not closely related to developments in the domestic market, but reflects the exchange rate of other currencies against the Euro, which remains the orienting foreign currency in the Albanian economy, because it dominates the country’s trade, but also has also a wide use in economic and financial transactions of the internal market./Monitor
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