The Albanian Lek (ALL) has achieved a historic milestone, climbing above the symbolic threshold of ALL100 against the euro for the first time. This record high for the Albanian currency against the European common currency was recorded on August 12, with Bank of Albania data indicating an exchange rate of ALL99.95 per euro within Albania. This movement highlights significant shifts in the Eur Lek exchange rate dynamics.
This notable appreciation of the lek has occurred despite considerable interventions from the Bank of Albania aimed at preventing the euro from falling below the ALL100 mark. Since May, the central bank has actively engaged in foreign exchange market interventions, including direct purchases and collaborations with commercial banks, to moderate the lek’s strengthening.
However, the seasonal influx of tourists to Albania during the summer months has proven to be a powerful economic force. These interventions by the central bank were ultimately insufficient to maintain the eur lek exchange rate above ALL100 within Albania, especially as exchange rate pressures typically reach their peak between late July and early August.
Since 2020, the eur lek exchange rate has experienced a nearly 20% decrease. This decline is largely attributed to the robust expansion of Albania’s tourism sector and a parallel increase in foreign investments, particularly within the real estate market. These factors have significantly bolstered the demand for the lek.
In the preceding two years, the Bank of Albania’s interventions, combined with instances of short-term market volatility, have disrupted traditional market patterns. These actions have played a role in shaping the current eur lek exchange rate landscape.
The central bank’s interventions have successfully moderated the annual rate of decline of the eur lek exchange rate. Currently, the euro is down by approximately 3.8% against the lek compared to the same period last year. The Bank of Albania’s primary objective behind these interventions is to manage inflation, which has remained under the central bank’s target of 3% for several consecutive months.
In July, Albania’s annual consumer price inflation rate was reported at 2.1%, according to the national statistics agency Instat. Furthermore, the Harmonised Index of Consumer Prices (HICP), another measure of inflation, reached 2.5% in June. These figures underscore the contained inflationary environment in Albania.
The Bank of Albania had previously announced a reduction in its monetary policy rate from 3.25% to 3% in July. However, at its most recent rate-setting meeting in August, the central bank decided to maintain the rate steady at 3%. These monetary policy decisions are crucial in influencing the eur lek exchange rate and overall economic stability.
Historically, the strengthening lek has been beneficial for the Albanian economy, helping it navigate the inflationary pressures of 2022 more effectively than neighboring countries like North Macedonia. Moreover, a stronger lek has contributed positively to financial stability by improving the financial standing of borrowers with euro-denominated debts but lek-based incomes.
However, the appreciating lek also presents challenges, particularly for Albania’s export-oriented sectors. In June, Albania’s trade deficit reached ALL42 billion (€419 million). Exports in key sectors such as food, textiles, and construction materials have all experienced annual declines during the month. This downturn is partly attributed to the high value of the lek, which makes Albanian exports more expensive and less competitive in international markets.
The country’s significant textiles and footwear industry has been particularly affected. Industry representatives warned in 2023 that as many as 75,000 jobs could be at risk due to the high lek making Albania’s fashion industry less competitive. The tourism sector, paradoxically a driver of the lek’s strength, also faces challenges to its competitiveness due to the currency appreciation. The fluctuating eur lek exchange rate therefore presents a complex economic picture for Albania, with both advantages and disadvantages.
