BANK OF ALBANIA

Questions and answers at the Governor's Press Conference on 2 May 2018

Publication date: 02.05.2018

 

Question: Yesterday there was an open public letter by the Association of Exporters calling for the Bank of Albania to intervene regarding the de-euroization of the economy. What is your position, since they were saying that this leads to less currency in circulation?

Governor: I invite the exporters to come and talk at the Bank of Albania to further clarify the impact of our strategy and the role of the Bank of Albania. We have received the letter and we share the concern of the exporters. But, I want to make it clear that the Bank of Albania, taking into consideration its objective for maintaining price stability, looks at the phenomenon at the macro level, and the impact of the exchange rate at the economy level.

It has been mentioned many times in the media that one of the underlying factors for the appreciation of the exchange rate has been the psychological impact of the measures taken under the strategy for promoting the use of the national currency that we have launched. In fact, this strategy has measures related with the required reserve and it is applied only in the banking market. From the available data, the level of foreign currency deposits, mainly in euro, has not changed, and actually it has increased. If these deposits fall, this is due precisely to the exchange rate appreciation, since denominated in lek they show a decline, but de facto in absolute terms denominated in the original currency they have shown an increase. So, we have a decline neither in foreign currency deposits nor in interest rates.

We have foreseen that the de-euroization strategy and the promotion of the use of the national currency will have a neutral impact in the banking and the financial systems. This is because the measures applied on the required reserve in foreign currency are offset by those in lek and vice versa. We expect a decrease in the foreign currency position vis-a-vis the national currency in 3-5 years. In addition, the measures have not yet entered into force.

In the event we have a psychological impact, which is not impossible, it comes from the market. It comes from a noise, overreaction, misunderstanding or maybe even misleading perception of the market. But, we also have many other factors related to the real market, we have high inflows, fundamental factors. I mentioned it during the statement as well, the exchange rate appreciation started in the second half of 2015. In the event we have an appreciation of the exchange rate due to fundamental factors, this shows that the rate is going towards a new equilibrium and that there is no problem for the economy, since it shows a growth of the purchasing power of the economy. But, in the event we have a higher appreciation than the impact of the fundamental factors allows, due to different factors, then this affects negatively the inflation level as well.

Since our main objective is price stability, we monitor carefully the market and we would react in such an event, in accordance with our monetary policy regime. And this is exactly what we are doing; we are monitoring the exchange rate on a daily basis, based on the parameters and criteria, by also defining our reaction strategy in accordance with the conventional monetary policy instruments.

I call on all the economic agents not to take hasty actions based on the actual performance of the exchange rate, meaning not to make hasty conversions driven by the exchange rate fluctuations, as they may suffer losses in the future. The effect of psychological or any other factors on the exchange rate, outside the fundamental factors, is always temporary. And if it's temporary, it means that those economic agents that take hasty actions would suffer losses. This is the postulate and it has happened. But of course, no one can foresee how things will go; if we could predict the exchange rate, we would be prophets and our reactions would be exact, even for the economic agents.

One thing is sure, that we have high euro inflows in the economy. But, the appreciation of the exchange rate beyond parameters may also be due to speculative factors in the market. Therefore, once again, I call on the economic agents to react wisely and to take action on a continuous basis, not only in a situation of appreciation or depreciation, to mitigate the exchange rate risk in their contracts, as it happens all over the world.

Turning to the exporters’ issue, I invite them and we will keep in contact with them to explain in detail our strategy to promote the use of the national currency and to clarify that it is not an objective of this strategy to affect the exchange rate. Our objective is price stability and an over-appreciation of the exchange rate would affect it. We will elaborate on all the elements of our strategy in order to be clear and coordinated not only with the exporters, but also with all the other interest groups that are sensitive on this issue.

 

Question: You spoke about inflows, what are the sources of these inflows?

Governor: We have repeatedly mentioned the sources of inflow. There are foreign investments, remittances, and, particularly during the summer, revenues from visitors and tourism. We have also seen an improvement in the balance of foreign trade. We have observed that the level of exports has grown significantly over the last period, indicating an increase in competitiveness. One of the factors affecting the exchange rate is the high level of exports. Albanian exports have had a very positive growth. On the other hand, we have a deficit of the current account, the exports-imports balance is negative; therefore, we have more imports than exports. In this case, for each one lek in the exchange rate appreciation, there are more winners than losers.

Yet, this is not the strategy and the purpose of the Bank of Albania. At the macro level, I said that the exchange rate appreciation shows increased purchasing power, as long as it is determined by fundamental factors. Our objective is to have price stability and achieve the 3% inflation target. We will cooperate with all groups of interest, in order to be as transparent and coordinated as possible and to explain the Bank of Albania's strategy in accordance with its legal objectives so that we do not have misunderstandings or misconceptions as it often happens, since these are specific macroeconomic phenomena and difficult to understand. We will continue to have a transparent and elaborate communication for the public to understand, clarify and guide the markets in the right direction. But, of course, the exchange rate is a consequence of demand-supply forces, since we have a free exchange rate regime.