Lek starts the week with further strengthening / Euro and Dollar at the lowest level in two and a half months

2023-11-06 20:39:00, Ekonomi CNA

Lek starts the week with further strengthening / Euro and Dollar at the lowest

The lek has started the week with further strengthening in the exchange rate with the Euro and the US Dollar.

According to the official exchange rate of the Bank of Albania, the Euro was exchanged on Monday at 104.99 ALL, decreasing by 0.12 ALL since the end of last week. The euro has fallen to its lowest level since August 15.

Even the American Dollar has suffered a significant drop, by more than one Lek compared to Friday of last week. One American dollar was exchanged today for 97.71 Lek, at the lowest value since August 22.

The Lek is showing a new and gradual appreciation trend starting from the last week of October, especially in the exchange rate with the Euro.

The increase in the basic interest rate last Wednesday by the Bank of Albania seems to have given an even stronger impetus to the strengthening of the Lek. Experts are generally skeptical about the effect of interest rates on the performance of the Lek exchange rate against the Euro.

However, the increase in the base rate after almost eight months represents a further step in the reduction of monetary stimulus and the gradual normalization of monetary policy towards a neutral interest rate. In theory, the narrowing of the interest rate gap between the Euro and the Lek could have some kind of impact on the further strengthening of the local currency.

On the other hand, even though the Bank of Albania for the first time this year has kept interest rates significantly lower than the European Central Bank, the Lek has strengthened significantly against the Euro and has even reached historical lows.

The exchange rate between the Euro and the Lek is mainly the result of internal supply and demand ratios in the financial market. The supply of Euros this year has been higher, thanks to the increase in inflows in the Balance of Payments. Tourism, other service exports and foreign direct investments are estimated to have had the main impact.

Meanwhile, the supply of Lek has been decreasing, due to the slowdown in lending to the economy and the restrictive fiscal policy of the government, with a very high budget surplus. The statistics of the Bank of Albania show that, while deposits in Lek remain practically at a standstill, deposits in Euro at the end of September were growing annually by 16.5%.

The strong lek makes imports of goods and services cheaper (for the same price in foreign currency) and is estimated to have had a role in the relatively lower inflation values ??in Albania, compared to other European countries. Also, the strong Lek helps entities with income in Lek and liabilities in Euro to reduce the debt burden on their balance sheets.

However, due to the strengthening of the Lek, subjects with income in foreign currency and expenses in the local currency lose, from the exporters of goods and services to the recipient of remittances./ Monitor Magazine