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The foreign exchange reserve of the Bank of Albania set a new record in July.
According to data from the Bank of Albania, in the middle of this year the value of foreign exchange reserves reached 5.61 billion euros, the highest value ever recorded.
The value of the reserve has increased by another 64 million euros (about 1.15%) during the month of July, while compared to a year ago the value of the reserve has increased by 12%.
Most of the annual increase in foreign exchange reserves came in June, when Albania issued the sixth Eurobond in its history.
The Eurobonds issued had a 5-year maturity, a total value of 600 million euros and a yield of 6.125%. But, in the meantime, the increase continued during the month of July, with another 64 million euros.
In recent years, government borrowing in foreign markets has had an impact on the growth of the foreign exchange reserve, but, also, the Bank of Albania is adopting a strategy of gradually expanding the reserve through the purchase of Euros in the domestic foreign exchange market.
This summer, the Bank of Albania also decided to increase the planned amount of foreign exchange purchases for 2023, as a measure to curb the strengthening of the local currency in the foreign exchange rate.
According to the updated information, the estimated amount of purchases for the calendar year will increase to between 220 and 300 million euros, from the previous range of 160-220 million euros that was published earlier this year. Until the end of August, it is estimated that the Bank of Albania has bought about 190 million euros in the auctions held.
The foreign exchange reserve is administered by the Bank of Albania and can serve as an instrument to finance the insurance of imports, to support the financial sector with liquidity in foreign currency or to stabilize shocks in the foreign exchange rate.
Being an economy with a negative trade position, especially in goods, Albania is theoretically exposed to situations where securing the necessary currency may be difficult.
The regulation "On the policy and method of administration of the foreign exchange reserve", approved by the Supervisory Council, also defines the purposes for which the foreign exchange reserve is kept. Liquidity and safety are defined as the primary objectives of reserve management.
Securing income from reserve management represents the third objective, as long as liquidity and safety objectives are not compromised. The Supervisory Council also approves the qualitative principles and criteria for the development of the foreign reserve administration activity.
The rapid increase in interest rates in the international markets since the middle of last year has had a negative effect on the rate of return of the foreign exchange reserve, which suffered a further decline into negative territory. According to the Bank of Albania, for the year 2022, this return was negative at 3.18%./Monitor
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