The Euro to Albanian Lek exchange rate hit a new historic low on Friday, reflecting a combination of seasonal and structural factors impacting Albania’s economy. According to the official exchange rate published by the Bank of Albania, the Euro was exchanged at just 97.84 Lek, marking the lowest level ever recorded.
Seasonal Factors Driving Currency Surge
Foreign exchange dealers attribute this sharp depreciation of the Euro primarily to the ongoing tourist season, which traditionally brings a significant inflow of foreign currency, especially Euros. The seasonal effect began to intensify in the second quarter and has now reached its peak, boosting the supply of Euros in the market and thereby placing downward pressure on the exchange rate.
Central Bank Interventions Fail to Hold the Line
This year, the pressure on the exchange rate has proven even stronger than previously anticipated. In response, the Bank of Albania has resumed direct foreign currency purchases since May, aiming to prevent further Euro depreciation and to curb the strengthening of the Lek. These interventions are justified by the central bank’s inflation target, which has remained below the 3% goal for over a year.
Despite these actions, the Bank of Albania is limited in its capacity to control the exchange rate fully, due to the commitment to a free-floating currency regime. This policy was recently reaffirmed by the International Monetary Fund (IMF) during a meeting with Governor Gent Sejko. The IMF stressed that maintaining a flexible exchange rate is essential for cushioning external shocks and for aligning Albania with EU economic standards.
Market Forces Override Monetary Measures
Despite the central bank’s efforts to keep the Euro near the 98 Lek threshold, market dynamics have caused minor deviations, with the rate dipping to this week’s record low. Contributing to the current situation is the Bank of Albania’s surprise decision earlier this month to cut the base interest rate from 2.75% to 2.5%. The rationale behind the move was the continued low imported inflation, partly driven by the strengthening of the Lek.
In theory, such a rate cut should weaken the domestic currency. However, analysts argue that monetary policy transmission in Albania remains weak, due to the underdeveloped nature of the financial market, meaning the interest rate cut had limited impact on reversing the Lek’s appreciation.
Fiscal Policy Adds to the Strength of the Lek
An additional factor strengthening the Lek is the Albanian government’s tight fiscal stance. The budget remains in substantial surplus, contributing further to the currency’s resilience. As of the end of May, the fiscal surplus had reached over 39 billion Lek, although this represents a 22% decrease compared to the same period last year.
Outlook: Continued Strength or Imbalance?
As tourism peaks and fiscal tightening continues, the Euro-Lek rate may remain under pressure. While short-term interventions might offer temporary relief, structural imbalances—like heavy reliance on remittances and tourism—continue to influence currency dynamics. Balancing a free-floating exchange rate regime with inflation control and market stability remains a growing challenge for Albania’s monetary authorities.