Lek unexpectedly strengthens against euro, loses ground against dollar

Tirana Times
By Tirana Times November 13, 2015 10:43

Story Highlights

  • Experts explain lek's strengthening at this unusual time with lower demand for euro as lending has dropped to moderate negative growth rates and imports have slightly contracted and continuous demand by the government to borrow in Euro from the domestic market

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TIRANA, Nov. 10 – In an unusual situation for this period, the Albanian national currency, lek, has slightly strengthened against the euro and lost ground to the U.S. dollar as Europe’s single currency hit a six-month low against the dollar this week.

Data from the fixed exchange rate of the country’s central bank shows the Euro dropped to as low as 138.43 lek this week, in a similar situation to last August, the peak of the tourist season, which traditionally strengthens lek due to inflows of euros from tourists and Albanian migrants spending their vacations at home.

The Euro traded at an average of 139.53 lek last October and at 139.67 lek in Nov. 2014, remaining at its 140 lek average since early 2011.

Experts explain lek’s strengthening at this unusual time with lower demand for euro as lending, the majority of which is given in euro, has dropped to moderate negative growth rates and imports have slightly contracted and continuous demand by the government to borrow in Euro from the domestic market. The Albanian government has scheduled to borrow Euro 45 million in 3-month T-bills in two auctions in late December 2015.

Last summer, the Albanian government borrowed about €80 million in euro-denominated 12-month T-bill and two-year bonds at favorable rates as the European Central Bank has kept its key rate to a historic low of 0.05 percent since Sept. 2014.

In a similar situation with the Euro, which has hit a six-month low against the U.S. dollar, the Albanian lek has also considerably depreciated against the dollar. The U.S. dollar traded at 128.81 lek this week, up from an average of 124.21 lek last October and 112 lek in Nov. 2014 similarly to April 2015 when at 129.97 lek it hit a 12 year high against both the lek and Euro as international oil prices stood at a historic low.

The national currency, lek, has lost around 15 percent during the past six years against the Euro, the main currency used in real estate lending and trade. In November 2008, when the global crisis broke out, the Euro stood at an average of 123.29. Since then, it has been on a constant appreciation trend against lek, climbing to a historic record high of 141.97 lek in June 2011 and remaining at an average of 140 lek since then.

The appreciation of the Euro against the Albanian lek is bad news for borrowers in Euro who have their income in lek and government’s external debt payments but good news for Albanian exporters who have been affected by Eurozone spillover impacts.

The national currency’s sharp depreciation against the U.S. dollar since mid-2014 has had negative impacts on several Albanian imports making them more expensive or failing to reflect sharp cuts in international markets such as fuel prices which have almost halved in the past eight months.

The depreciation has also had an impact in credit as U.S. dollar-denominated loans account for around 10 percent of the total loans to businesses and a negligible 1.2 percent in loans to households, making repayment for those who have their income in the Albanian currency much more expensive.

Tirana Times
By Tirana Times November 13, 2015 10:43