BoA Scenario: What would one euro at 115.5 lekë bring? - Higher inflation, higher interest rates and weaker economic growth
The performance of the Lek exchange rate in recent years has been the focus of the Bank of Albania's attention, the latter emphasizes in its annual report for 2025. Over the 2021-2025 time horizon, the Lek exchange rate against the Euro in the domestic market strengthened by 21%. Most of this strengthening, or about 75% of it, occurred during 2023 and 2024.
Meanwhile, the pace of strengthening fell to 2.8% during 2025, thanks to the increased presence of the Bank of Albania in the foreign exchange market over the last two years.
The Bank of Albania argues that the strengthening of the lek has been mainly influenced by structural factors, such as increased income from tourism, remittances, seasonal work abroad and foreign direct investment, which have increased the supply of foreign exchange in the domestic market. At the same time, the institution emphasizes that the free exchange rate has helped absorb inflationary pressures in periods of external shocks.
In a hypothetical scenario presented in the report, the Bank of Albania estimates that keeping the euro fixed at 115.5 lek during the period 2023-2025 would bring higher inflation of 6% to 7%.
According to the Bank of Albania, such a scenario would require an increase in the base interest rate to 7%, reduce economic growth to 2.6% from 3.9%, while unemployment would increase by 1.2 percentage points, reaching an average of 9.7%. The report also warns that non-performing loans to businesses would rise from 4.6% to 7.5%.
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