Albania’s currency stabilises against the euro

Albania’s currency stabilises against the euro
By Valentina Dimitrievska in Skopje July 29, 2018

Albania’s national currency, the lek, has finally stabilised against the euro following an unprecedented strengthening. 

The Albanian lek started to strengthen against the euro in 2016 and posted record high levels this year, particularly in May after being stable for several years at around ALL140 to the euro. However, the lek has stabilised in the last month and a half, with the euro being trading at around 126 lek.

The euro has been trading at an average of 126 lek since early June after Albania’s central bank decided to undertake emergency interventions to buy excess euros from the local currency exchange market in a bid to curb losses for the country’s Eurozone destined exports, local producers facing tougher competition from cheaper imports and a sharp devaluation of Euro-denominated savings accounting for half of total deposits.

The lek rose to a 10-year high of 124.17 lek to the euro in early June, and traded at an average of about 126 lek for the month, up 6% from the mid-January peak level of about 134 lek and 10% above the mid-2015 level when euro’s five-year reign of about 140 lek came to an end, Tirana Times reported on June 26.

The more stable national currency in the past forty days reflects the ongoing euro purchase operations by Albania’s central bank.

While exporters are suffering considerable cuts in profits, the lek’s rise against the euro has not been much reflected in exports in the first half of this year, when they grew by double-digits, but the situation was mainly a result of energy-related exports and a low-base effect, the article said.

Local media claimed at end June that the seizure of over €3.4mn in cash at the Albanian port of Durres, allegedly linked with drug profits, confirmed speculation that money illegally entering the country is one of the main reasons behind the lek’s rise against the euro. 

But despite speculation that the lek appreciation was connected with huge revenues from drug smuggling, the central bank explained at the time that the reasons for the appreciation are mainly linked to capital conversion by some banks, disbursement of a loan in foreign currency to an unnamed public company and expectations of a good tourism season.

Albania has maintained a free-floating currency regime since 1992, unlike some other countries in the region which opted for fixed exchange rates with the euro.