TIRANA, July 12 – The Euro hit a five-year low against the Albanian lek this week in gradual depreciation since late 2015 apparently fueled by the tourist season effects and lower demand for dominating euro-denominated loans as lending continues to remain at negative growth rates.
The euro dropped to as low as 136.72 lek this week in levels that had not been registered since September 2010, according to the central bank’s fixed exchange rate.
Experts expect the Albanian national currency to continue strengthening against Europe’s single currency in the next couple of months, especially in August, the peak of the tourist season when more tourists and migrants visit Albania and the Euro turns into a common currency, triggering depreciation.
The Euro also sharply depreciated against the Albanian lek last December when it dropped to below 137 lek in unusual year-end situation.
The depreciation of the Euro against the Albanian lek is good news for borrowers in Euro who have their income in lek and government’s external debt payments, but bad news for Albanian exporters who are also facing a sharp cut in commodity prices. Two-thirds of Albanian exports are destined for Eurozone countries which makes then vulnerable to Euro fluctuations.
The Vienna Institute for International Economic Studies has recently urged Albania to consider adopting an intermediate exchange rate system allowing broader fluctuation bands to offer more certainty for exporters and serve as shield against destabilizing capital flows.
Albania faces high euroization rates, with the single European currency accounting for more than half of total credit and being the main currency in the real estate market.
Lending in the national currency lek has gained around 10 percentage points in the past four years and now accounts for about 40 percent of the total credit portfolio compared to only a quarter just before the onset of the global financial crisis in 2008.
The national currency, lek, has lost around 15 percent during the past seven years against the Euro. In November 2008, when the global crisis broke out, the Euro stood at an average of 123.29 lek. Since then, Europe’s single currency 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 until late 2015 when it embarked on a downward trend.
Meanwhile, the national currency has been stable against the U.S. dollar for the past three months trading at 123 lek.
The U.S. dollar, whose weight in the Albanian economy and lending is much lower, hit a 12-year high against the Albanian lek and the Euro in March 2016 when oil prices fell to as low as $30 a barrel.
