Euro shows signs of upward trend against Albanian lek as tourist season comes to an end

Tirana Times
By Tirana Times September 3, 2018 14:39

Euro shows signs of upward trend against Albanian lek as tourist season comes to an end

TIRANA, Sept. 3 – Europe’s single currency has been gaining ground against Albania’s national currency over the past couple of weeks amid ongoing emergency intervention by Albania’s central bank and at a time when euro inflows on the local market have slowed down as the peak tourist season comes to an end and dozens of thousands of Albanian migrants have left the country after spending summer holidays at home.

The euro climbed to an almost 3-month high of 126.4 lek this week, but continued trading at a 10-year low against the Albanian lek with a series of negative effects for Albania’s highly euroised economy, mostly Eurozone-destined exports, local producers facing tougher competition from cheaper imports and sizeable Euro-denominated savings and remittances.

Europe’s single currency has been continuously gaining slight advantage against the Albanian lek since Aug. 20 when it traded at 125.38 lek after fluctuating at about 126 lek for the past three months.

Yet, the euro continues to trade at about 6 percent below its late 2017 rate and is 10 percent below the mid-2015 level when its five-year reign of about 140 lek came to an end.

Euro’s rapid depreciation against the Albanian lek during the first half of this year forced Albania’s central bank to undertake uncommon emergency euro purchase operations to reduce the excess euro presence on the local market putting pressure on a stronger national currency.

Despite ongoing central bank euro purchases since early June, the emergency operations have so far only managed to stabilize lek against the euro, the key foreign currency in the local market accounting for about half of total savings and lending and two-thirds of Eurozone-destined exports.

The euro traded at an average of 125.66 lek during August compared to 125.86 lek in July and 125.95 lek last June when the central bank initiated the emergency intervention, according to the Bank of Albania’s fixed exchange rate, a reference level in the country’s free floating exchange rate regime determined by market supply and demand.

In a coordinated move, Albania’s central bank also cut the key rate to a new historic low of 1 percent last June, fearing disinflationary pressure from euro’s free fall and delayed its 3 percent inflation target for 2020 at a time when consumer prices have fluctuated at about 2 percent during this year, 1 percent below the rate estimated to have a positive impact on the Albanian economy.

Albania’s inflation rate has been running below the 3 percent target for five consecutive years, hinting sluggish demand and a slowly recovering economy which last year grew by a 9-year high of 3.8 percent.

Experts predict the national currency could lose some ground against the euro with the conclusion of the tourist season in September, but a new construction boom amid sluggish recovery of credit and allegation of money laundering could still keep the euro trading at a 10-year low against the Albanian lek, posing a new threat to the country’s economy.

Albania’s central bank says the stronger national currency reflects a recovering economy, higher euro inflows from major energy-related projects, the tourism sector and market expectations, but the main opposition Democratic Party and some economy experts have linked the national currency’s constant strengthening to alleged illegal euro inflows resulting from the peak 2016 cannabis cultivation and ongoing drug trafficking in the country, considered a major cannabis producer and a key transit route for cocaine and heroin for European markets.

Tirana Times
By Tirana Times September 3, 2018 14:39