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Ekonomia

Euro in the dive, suffers the largest decline since January this year

Euro in the dive, suffers the largest decline since January this year

The Lek is continuing this week to gradually gain ground against the Euro in the foreign exchange rate. According to the official exchange rate of the Bank of Albania, on Tuesday the Euro fell again below the level of 121 Lekë and was exchanged at 120.98 Lekë.

This is the lowest level of the Euro / Lek exchange rate since the end of January. The Euro exchange rate has not only surpassed the shock it received in early March, but is now approaching again the record levels it marked at the end of 2021, when it touched the lowest values ??of the last 14 years.

Market agents explain the depreciation of the euro mainly by the constant supply and low market demand for the European currency. In recent months, the entity that has brought the main increase in demand in the foreign exchange rate is the group of the Distribution System Operator (OSHEE), for the needs of electricity purchase.

Such an effect was felt strongly in early March, when OSHEE's high demand brought about a temporary panic and rapid strengthening of the Euro in the Lek exchange rate. The exchange rate of the euro rose over the course of a week by almost 5% and reached above the level of 127 lek. It took the intervention of the Bank of Albania on March 8, through the sale of currency, for the appreciation of the euro to be restrained and to gradually return to previous levels.

Market sources explain that OSHEE has closed its foreign exchange purchases for the following quarter and no major impact of this entity is expected in the near future. In the absence of the OSHEE factor, the agents say that there is no significant demand for the euro in the market, which explains the gradual decline of the exchange rate of the European currency.

Another factor that in theory may have supported the strengthening of the lek position is the increase of the key lek interest rate by the Bank of Albania. On March 23, the Supervisory Council increased the key rate by half a percentage point from the historic low of 0.5% to 1%.

The increase of the base rate represents a movement that increases the price of the local currency, tightens its supply and at the same time tends to make the savings in lek more attractive. However, so far experts say that there is no significant impact of this move in terms of increasing demand for lek and shifting savings to local currency.

In fact, the lek exchange rate is showing a somewhat surprising trend, given the fundamental factors that usually determine its performance. Since the last quarter of last year, the rise in prices of imported goods has put increasing pressure on the current account deficit.

According to the Bank of Albania, the current account deficit in the IV quarter 2021 expanded by 56% compared to the same period of the previous year and by almost five times compared to the previous quarter. The main effect was given by the increase of the trade deficit in goods. The inflows into the financial account, mainly related to the increase in foreign direct investment, were far from fully balancing the increase in the current account deficit.

Despite this, the exchange rate of the euro at the end of last year touched the lowest levels in 14 years, at the level of 120.36 lek.

At a time when the economy is facing very high levels of imported inflation, the appreciation of the Lek has a positive effect in terms of partial amortization of the rise in prices of imported goods.

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