The Euro falls again, touching the lowest level in a month in the exchange rate

The lek is gaining ground again in the exchange rate with the euro. According to the official exchange rate of the Bank of Albania, on Tuesday the euro was exchanged at the level of 115.88 ALL, the lowest level in a month.

Agents of the foreign exchange market say that the demand for euros is weak, while the foreign exchange supply remains abundant.

In the last days of 2022 and in the first part of January, the euro marked a significant increase against the lek. According to agents, the temporary demand for the euro may have been driven by the drop in its exchange rate to very low levels, which was seen by many economic agents as a good chance to buy euros for the anticipated foreign exchange needs in the European currency.

This trend may also have been influenced by the high concentration of budget expenditures in the last weeks of 2022, which created an increase in the supply of lek in the foreign exchange market and, in parallel, increased liquidity was given to businesses, a part of which may have been used for the purchase of euros in advance, also seeing the favorable exchange rate at the end of December.

On December 28 of last year, the euro dropped to the value of 112.83 lek, the lowest level of all time in the exchange rate with the lek.

Experts predicted that these forward purchases would be reflected in a weakening of the demand for the euro during the first quarter of 2023. So far, such a projection is being confirmed and the euro exchange rate is following a gradual downward trajectory during the first half of the month. short.

Compared to a year ago, the exchange rate between the euro and the lek appears to decrease by 4.4% and the appreciation of the local currency is continuing in the first part of this year.

According to experts, the strengthening of the lek can be related to the increase in foreign currency inflows in the balance of payments, supported especially by tourism, service exports and high levels of foreign investments, but also by the constant levels of informal currency flows in the economy. . Last year, bank deposits in euros increased by 17% and this is an indirect indicator that foreign exchange flows in the economy remain high.

Another factor that theoretically supports the strengthening of the lek is the movement in the tightening direction of monetary policy and the rapid increase in interest rates during 2022. Experts express skepticism regarding the impact of this factor on the Albanian foreign exchange market, however it is not excluded that especially the increase the rapid increase in yields last year may have enticed some investors to switch their savings from euro to lek, in order to invest with higher returns.