Euro gains ground against Albanian lek following emergency BoA intervention

Tirana Times
By Tirana Times June 11, 2018 17:02

Euro gains ground against Albanian lek following emergency BoA intervention

Story Highlights

  • Europe’s single currency recovered to 128.34 lek this week, up from a 10-year low of 124.17 lek on June 5, in considerable appreciation only few days after the Bank of Albania announced it was going to buy excess euros in an unusual intervention in the country’s free floating exchange rate regime

Related Articles

TIRANA, June 11 – Albania’s central bank emergency intervention in the country’s currency exchange market has put an end to the alarming strengthening trend of Albania’s national currency, lek, against Europe’s single currency, somehow easing panic among the country’s exporters as the biggest losers in euro’s free fall in the first half of this year.

Europe’s single currency recovered to 128.34 lek this week, up from a 10-year low of 124.17 lek on June 5, in considerable appreciation only few days after the Bank of Albania announced it was going to buy excess euros in an unusual intervention in the country’s free floating exchange rate regime targeted at stopping the national currency’s strengthening which is having a series of negative effects on Albania’s highly euroised economy.

However, at 128.34 lek on June 11, a 42-day high against the Albanian lek, Europe’s single currency still stood considerably below the mid-January peak level of about 134 lek for this year and is about 8.4 percent lower compared to mid-2015 when the euro’s five-year reign of about 140 lek came to an end.

The considerable strengthening of the euro by 4.1 lek comes only five days following the Bank of Albania’s announcement of an uncommon intervention in Albania’s free floating exchange rate regime which is largely determined by market supply and demand and sees the central bank intervene only in case the country’s key macro-economic indicators or inflation target is put at risk.

The euro’s free fall in first half of this year has negatively affected Albania’s Eurozone destined exports, local producers facing tougher competition from now cheaper imports and thousands of poor households relying on remittances from their family members mainly in Italy and Greece where 1 million Albanian migrants live and work. In addition, inflation rate, at 2 percent in the first four months of this year also seemed at risk of preserving its current rates, not to mention achieving the Bank of Albania 3 percent target, due to cheaper imports, an apparent cut in consumption or purchasing power by households relying on remittances or exporting businesses curbing investment and freezing new employment to handle losses from a weaker euro.

The central bank’s intervention has also had a temporary positive psychological effect as major stakeholders were expecting a further depreciation of Europe’s single currency and now expect the euro to embark on a gradual upward trend.

Experts say the euro could still lose ground in the next few months as Albania heads to its peak tourist season and Albanian migrants come home to spend their holidays, further increasing euro supply in the local market and leading to a new strengthening of lek.

In another coordinated move, Albania’s central bank decided last week to cut the key interest rate by another 0.25 percentage points to a historic low of 1 percent in a new monetary policy ease that comes two years after the Bank of Albania last cut key rates.

The new cut to the key rate is expected to further reduce national currency-denominated loan rates in a bid to stimulate sluggish credit and consumption and investment.

Albania’s economy is highly euroised with half of total credit and savings denominated in Europe’s single currency which has forced the country’s central bank to undertake a de-euroisation strategy. The euro is a common currency in real estate and car trade in Albania.

Tirana Times
By Tirana Times June 11, 2018 17:02