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The euro falls to the lowest level in the country since it came out as a physical currency

2023-04-11 17:01:21Biznes SHKRUAR NGA REDAKSIA VOX
The euro falls to the lowest level in the country since it came out as a
The euro falls to the lowest historical level in the country

The euro started this week with a slight drop in the exchange rate with the lek.

The European currency was exchanged today at 112.82 ALL, down by 0.01 points compared to the end of last week. Although Tuesday's decline was in itself almost negligible, it is significant in terms of statistical records, because it took the euro to a new historical low in the lek exchange rate.

The previous record was the value of ALL 112.83, recorded on December 28, 2022 and April 7, 2023.

The euro falls to the lowest level in the country since it came out as a

With the entry of the second quarter of the year, the euro is further deepening the fall in the exchange rate with the lek. Agents say that the market is characterized by large inflows of euros and a low demand for the European currency.

The current account balance deficit improved last year, while tourism receipts, remittances and foreign direct investment hit their highest levels in at least 15 years. Adding the flows from informal channels, this situation has significantly increased the supply of euros in the domestic foreign exchange market. This is indirectly proven by the continuous growth of bank deposits in euros, which is continuing even in the first months of 2023.

On the other hand, the tightening nature of the monetary and fiscal policy for 2022 and the first months of 2023 theoretically supports an appreciation of the lek in the exchange rate with the euro.

The strong fall of the euro in the foreign exchange rate has significant impacts on the Albanian economy. This decrease makes imports of goods and services cheaper. The strong lek has played a significant role in mitigating inflationary pressures from abroad and has contributed, in part, to a lower level of inflation compared to most regional and European economies.

The fall of the euro also makes the tourism of Albanians abroad cheaper, which during 2022 and the first part of 2023 has continued to grow at a fast pace. Borrowers with income in Lek and loans in European currency have significant benefits from the fall of the euro. The weakening of the euro has partially mitigated the effect of the increase in the cost of long-term loans, due to the increase in the Euribor.

But, on the other hand, the strengthening of the local currency has a negative impact on the exporting sectors of goods and services. In theory, a strengthening of the local currency reduces the competitiveness of businesses that sell goods and services in foreign currency, especially in the fashion sector. The strengthening of the lek is being added to a growing pressure from the labor market and the government's decisions to increase the minimum wage.

The fall of the euro also negatively affects the tourism sector, which realizes sales mainly in the euro currency. The devaluation of the euro can affect an increase in prices in the activities of the tourism sector, especially those of hotels and restaurants. In this way, the strengthening of the lek theoretically reduces the competitiveness of the tourism sector in Albania, which, however, after the pandemic has reached record levels in the number of visitors and generated income.

The strengthening of the lek also negatively affects the majority of bank deposits held in euro currency. However, this devaluation does not seem to have bothered euro depositors much, and the share of savings in the European currency has continued to grow. This can also be explained by the high euroization of the economy and the fact that most high-value assets are traded in euros./Monitor


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