TIRANA, Dec. 20 – Europe’s single currency hit a new 10-year low against the Albanian lek this week as it dropped to below 130 lek for the first time since December 2008 on a gradual downward trend that has seen the euro lose some 7 percent against the Albanian national currency this year, with a series of negative effects for the Albanian economy, primarily hitting Eurozone-destined exports.
The euro dropped to as low as 122.98 lek this week, reflecting both traditional year-end effects when the national currency gains slight ground due to higher euro inflows from migrants returning home and lack of intervention by Albania’s central bank following emergency purchase of excess euros from the local currency exchange market last June in a bid to curb the Euro’s free fall.
With its highest decision-making body paralyzed since early November 2018, the central bank has not made clear whether it will continue its emergency intervention in the country’s free floating exchange rate regime.
Six new members of the Bank of Albania supervisory council are expected to soon take over on seven-year mandates, unblocking decision-making at the nine-member body that has a key say on the country’s financial stability.
Europe’s single currency has lost around 11 percent compared to mid-2015 level when its five-year reign of about 140 lek came to an end, with a series of negative effects for the country’s highly euroized economy, where the euro accounts for almost half of credit and savings.
While slightly making Eurozone imports cheaper, the euro’s free fall has primarily hit exporters to the Eurozone due to increased costs, local producers facing tougher competition from cheaper imports, but also sizeable Euro-denominated savings and migrant remittances, increasing uncertainties on the Albanian economy.
On the positive side, the euro’s free fall has made repayment of government, but also business and household Euro-denominated debt much cheaper.
While exports have handled euro’s free fall pretty well this year due to a hike in energy-related exports thanks to heavy rainfall and a hike in commodity prices increasing electricity and oil sales, the European Commission warns in a recent report that delayed negative exchange rate effects on the Albanian economy will likely appear next year when new investment decisions and contracts are made.
The main opposition Democrats and some local experts have blamed illegal euro inflows from drug and crime proceeds for the euro’s free fall in Albania.
London-based European Bank for Reconstruction and Development also recently noted some ‘unrecorded cross-border activities’ may also be contributing to the appreciation pressures on the Albanian lek which it says reflects the ongoing de-euroisation policy initiative of the central bank in the financial sector, as well as the capital conversion of some banks.
