High supply and low demand, Euro hits new historic low

2025-10-21 16:56:00, Ekonomi CNA

The Euro suffered a further decline in its exchange rate against the Lek on Tuesday, touching a new historical minimum.

According to the official exchange rate of the Bank of Albania, the European currency was exchanged today at 96.6 lekë, the lowest level ever recorded. The exchange rate continues to decline on an annual basis, with 2.2% less compared to the same period last year.

Foreign exchange agents say that the market continues to be characterized by a high supply of Euros, while the demand for purchases is weak. This has led to a further decline in the exchange rate and especially in the asking price (ASK) offered by banks.

The source of foreign exchange inflows is difficult to identify in real time. The main hypotheses remain that they are related to tourism and real estate investment.

However, the market still has a strong perception of the high impact of informal foreign exchange inflows.

Balance of Payments data showed that the current account deficit increased for the second quarter of the year, by 19% on an annual basis, but, for the entire 6-month period of 2025, it remained in decline, 3.1% less compared to the same period last year.

Even the Bank of Albania's continued purchases of foreign currency have not been able to stop the further decline of the Euro. Last year, the Bank of Albania purchased 933 million euros, while according to statements by Governor Sejko in the Albanian Parliament, for the first nine months of this year, purchases have reached around 800 million euros.

These figures clearly indicate the high supply of the Euro in the foreign exchange market. In the absence of purchases by the Bank of Albania, the exchange rate of the European currency would be at even lower levels.

In parallel, the decline of the Euro and the strengthening of the local currency in recent years has been influenced in parallel by a more restrictive fiscal policy, with a reduction in the budget deficit and public debt.

For the third consecutive year, the budget balance has remained positive for most of the year. Based on data from the Ministry of Finance, at the end of the first nine months of 2025, the budget surplus was 47.1 billion lek. However, the surplus is at lower levels compared to the same period a year ago, down 32%.

The depreciation of the Euro makes the import of goods and services cheaper and is estimated to have been one of the factors that has determined the low levels of inflation in the last two years. But, on the other hand, the decline of the Euro negatively affects the exports of Albanian goods and services and reduces their competitiveness./ Monitor