The euro exchange rate continued its decline on Thursday, approaching the symbolic threshold of 100 Albanian lek more closely than ever before. According to the official exchange rate of the Bank of Albania, the euro was exchanged at 100.14 lek, the lowest level ever recorded.
The exchange rate remains influenced by the seasonal factor, characterised by a large influx of foreign currency. Historical data show that the peak of the summer seasonal effect on the exchange rate is reached between the end of July and the beginning of August.
This year, the seasonal effect has been less pronounced due to the intervention of the Bank of Albania, which has been making direct purchases of foreign currency since the end of May to prevent the euro from falling below the 100 lek threshold.
However, this week the euro has slightly lost ground, despite the continuous oversight by the Bank of Albania on the exchange rate.
An exchange rate of the euro just above the 100 lek level has become a new normality for the past year. Now, the annual change in the exchange rate has significantly softened. Today, the euro-lek exchange rate was down by only 1.7% compared to the same day last year.
Nevertheless, maintaining the rate at these levels is solely due to the intervention of the Bank of Albania. If market forces were allowed to operate freely, the euro would certainly have been exchanged well below the 100 lek level for months. The extent of the Bank of Albania’s impact on the exchange rate is difficult to determine precisely, as the purchase values of foreign currency have not yet been made public.
The Bank of Albania intervened to prevent a further decline in the euro rate, justifying this decision with the legal objective of inflation. In the first part of this year, inflation fell below the central bank’s target, and in June, it was reported by the Institute of Statistics (INSTAT) at 2.1%.
The strengthening of the lek has played a significant role in mitigating imported inflation and protected the Albanian economy from the strong inflationary wave of 2022-2023.
Furthermore, the decline of the euro has helped maintain the payment capacity of borrowers in foreign currency with incomes in lek, aiding in cushioning the effects of the rising euro interest rates.
However, the fall in the euro exchange rate has had serious consequences for economic sectors that sell their products and services in the European currency. This decline has affected the reduction of Albanian exports and increased prices in certain sectors, such as tourism and construction.
