BoA lists factors that prompted Lek to strengthen its position vis-a-vis Euro currency

Domestic currency, Lek, strengthened its position during the second quarter of the year, at an especially rapid pace in May and June.

According to the Bank of Albania’s estimates, in the nominal effective terms, Lek’s annual appreciation recorded 4.6% in this quarter, deepening from 3.5% and 3.2%, respectively in the first quarter of the year and 2016.

This performance has reflected the strong appreciation of the lek against the euro during this period, at a time when it continued to strengthen at the same pace with other currencies in the basket.

In real annual terms, the lek was appreciated by 4.4% in this quarter, from 4.0% a quarter earlier.

The smallest real appreciation against the nominal one in this quarter has reflected the negative inflation differential in the country with the average of the partner countries.

According to the BoA’s report, the nominal effective exchange rate (KNEK/NEER) is calculated against the currencies of the five major trading partners (Italy, Greece, Germany, Turkey and China), using the relevant trade weight.

The inflation rate in the country was lower than the average inflation in the partner countries in this quarter.

The strengthening of the domestic currency has recently reflected the improvement of the external position of the economy and the narrowing of the current account deficit and, along with it, the increase of net inflows of the capital and financial account.

The latter has been influenced by the continued high foreign direct investment inflows, which were more than enough to cover the current account deficit.

Consequently, foreign currency inflows into the economy have been significantly higher than outflows, and some of them have been translated as foreign exchange surpluses in the market.

The strengthening of the lek against the European currency has been more visible in May and June.

SCAN

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