BANK OF ALBANIA

Question and answers at the Press Conference, 06 June 2018

Publication date: 06.06.2018

 

Question: You just stated that the Bank of Albania will purchase foreign currency in the foreign exchange market. Could this be considered, Mr Governor, a direct intervention by the Bank of Albania on the exchange rate?

Governor: This is an intervention to purchase the excess currency in the forex market, in order to curb the further acceleration of the exchange rate appreciation, which was found to have had a rapid pace in May. This appreciation has gone beyond the parameters and criteria of the Bank of Albania, in terms of monitoring the free exchange rate market. Thus, against this backdrop, all the legal and regulatory criteria of the Bank of Albania have been met, hence compelling the Supervisory Council to take such a decision, in order to limit a further exchange rate appreciation.

Question: What is the reason of this appreciation of the lek? In the market, is the amount of euro higher than the amount of lek, or vice versa?

Governor: The market has seen an increase in the amount of euro, no doubt. The increase in the euro amount has been constant, since 2015. Certainly, the exchange rate appreciation is not due only to the increase in the amount of euro in the market, but also mostly due to heightened expectations of the agents in the forex market for exchange rate appreciation. This expectation, determined by specific factors that I mentioned in my statement, has pushed the exchange rate into appreciation maybe for psychological reasons as well. Hence, the expectation of the economic agents has been towards an appreciation and that has oriented all the agents - banks and exchange rate bureaus - to have an appreciated exchange rate. This has gone beyond the normal parameters of a free exchange rate regime and this situation has obliged the central bank to undertake intervention operations in the forex market to ensure a normal operation of the exchange market.

Question: In the previous press conference, you assured us that there was no need for intervention in the foreign exchange market. What has changed, in such a short time, that the Bank of Albania is intervening now through a foreign currency purchase operation?

Governor: In the previous press conference, we said clearly that the foreign exchange regime in Albania is free floating, and that the Bank of Albania has certain criteria for market interventions. The Bank of Albania is not intervening now because of the exchange rate, but to stop the acceleration of the exchange rate appreciation, which affects the key macroeconomic parameters, especially our inflation target. Our main purpose for undertaking these operations is to halt the acceleration of the exchange rate appreciation, which is abnormal for the reasons I explained in my statement and has a very negative impact on our inflation target in the long run. Monetary policy analyses, in light of our core objective, have determined this very element. It has neither ever been out intention, neither is it now, to intervene since the exchange rate operates in a free regime. In Albania, the free exchange rate regime will continue. But, for as long as there are market expectations, driven by specific factors that I mentioned earlier, the Bank of Albania, in accordance with its legal mandate and the laws and regulations in force, has the right to regulate market parameters.