The euro suffered a further drop in the lek exchange rate on Wednesday.
According to the official exchange rate from the Bank of Albania, the euro was exchanged at 122.39 ALL. This level of exchange rate between the euro and the lek is the lowest recorded since the end of February last year, before Albania was affected by the effects of the pandemic.
Now that the summer season is approaching its peak, the lek is giving further signals of appreciation, a common seasonal trend, associated with the increase in foreign currency supply during the summer months. So far, the Bank of Albania assesses the exchange rate performance in line with these trends. After the last meeting of the Supervisory Council, on July 7, Governor Gent Sejko assessed the exchange rate as relatively stable, reflecting the balance of supply and demand for foreign currency.
This year, Albania has lifted all restrictions on foreign travelers, in order to encourage inbound tourism. This factor may have started to have an impact on foreign exchange inflows, which this year seems to be stronger compared to last year. In the same period last year, the euro was exchanged at the level of 123.7 lek, about 1.2 points more compared to this year.
Last year, the effect of the pandemic and restrictions on the movement of citizens was higher, which made the impact of the summer season on the exchange rate somewhat more limited. This year, things seem to be returning to normal. Usually, the peak of the lek appreciation in the summer season occurs in August, so according to market operators it is expected that this trend will continue in the coming weeks.
Even before the start of the summer season, the exchange rate reports during the first half of this year were in favor of the lek, with a slight tendency of appreciation of the local currency that started at the end of the first quarter. The high supply of the euro is evidenced, among other things, by the acceleration of the growth of euro deposits.
According to the Bank of Albania, at the end of May, bank deposits in euros were growing at an annual rate of 8%, from 6.1% at the end of last year. However, deposits give a partial picture of the euro supply in the market, because a significant weight is estimated to have the euro circulating in informal channels and which is not possible to measure accurately.
On the other hand, the total supply of the lek, measured by the M2 aggregate, has continued to grow, but at a somewhat slower pace compared to the second half of 2020.
According to the Bank of Albania, for the first quarter of the year the current account deficit reached 309 million euros. This figure is about 30% higher compared to the first quarter of last year, but 12% lower compared to the last quarter 2020.