Bank of Albania says that the strengthening of ALL came from expectations created in the market

In the first half of this year  ALL strengthening against the euro has come due to expectations created in the foreign exchange market.

The Bank of Albania notes that in an analysis of the exchange rate performance the volume of transactions in the domestic foreign exchange market is lower than the one dictated by foreign trade transactions.

This difference suggests that operators of real-economy sector may have changed their behavior. Also, the economic agents who needed foreign currency have preferred to wait to buy it, because of the expectation that the euro would be depreciated further. On the other hand, many of those who had funds in euro have rush to sell.

Expectations had a self-fulfilling effect over the short term, bringing the exchange rate strengthening. According to the Bank of Albania, commercial banks have been played a role in ALL as well.

Central bank’s analysis shows that in this case, banks have not absorbed temporary shocks in the foreign exchange market through the expansion of open foreign exchange positions. Therefore, the expectations of ALL appreciation have also influenced the behavior of banks.

According to the Bank of Albania, in the first half of this year the ALL was appreciated by 6.4% against the euro and more than half of this appreciation came in May and in the first week of June. The rapid strengthening of the ALL became a serious inhibitory factor for inflation growth, which forced the Bank of Albania to intervene by lowering the key interest rate and launching euro buying operations in order to stabilize the exchange rate.

Over the last two months, the exchange rate between the euro and the ALL has remained at the interval between 125.5 and 126 ALL.

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