Ultimately, the resulting increase in flexibility means that the SNB can better contribute to keeping Switzerland on the road to competitive success. BIS central bankers’ speeches  5
Lek appreciated on average by 2.3 percent against the euro in 2016 and 2017, while it appreciated by around 7 percent during the first half of 2018. Our analyses indicate clearly differing explanations for the pre and post 2018 appreciation. The 2016–2017 lek appreciation has been largely in line with improving fundamentals in the economy. Some of these structural improvements include: Declining current account deficits, on account of improved exports; Increased capital inflows, on account of high FDIs; Reduced financial market risk premia and increased confidence in our financial institutions. 2/3  BIS central bankers' speeches  On the contrary, the rapid appreciation we experienced in 2018 has been largely a FX market driven phenomenon. News of a sudden and sustained influx of foreign currency induced onesided expectations in the FX market. These expectations were reflected in an accelerated supply of foreign currency and delayed demand for it, generating a vicious cycle of continued appreciation. The Bank of Albania did not react upon the real appreciation trend of the past two years. While minor miss-alignments were still present, we assessed the trend was largely driven by improving fundaments. Thus, it allowed us to focus our monetary policy on achieving our 3 percent inflation target. We also did not react upon the recent financial market driven appreciation, in full consistence with our monetary policy and exchange rate regimes. We expected for the market to self-regulate and contain these shocks. However, this did not prove to be the case and the exchange rate appreciation accelerated.