The National Bank of Georgia (NBG) said on December 20 that the reason for lari’s recent depreciation against U.S. dollar is the combination of fundamental factors (global appreciation of USD, depreciation of Turkish Lira) and expectations.
“Despite the fundamental factors, according to our preliminary assessment, the current exchange rate depreciated by more than what rational expectations would suggest,” the NBG said in a statement.
GEL hit a record low against U.S. dollar after falling to 2.7412 on Monday. Exchange kiosks in Tbilisi were selling dollar for about GEL 2.80-2.81 as of Tuesday.
The National Bank said that it “will use all means and instruments at its disposal in order to limit excessive fluctuations on foreign exchange market and keep the lari exchange rate in line with fundamental factors.”
The National Bank last intervened on the currency market on October 12 – since then the Georgian currency has lost 17.3% of its value against dollar and 56% since November 2014, when GEL started depreciation.
Since the start of 2016, NBG sold a total of USD 240 million and bought USD 278.35 million in 23 currency market interventions.
Gross international reserves stood at USD 2.779 billion as of November, up from USD 2.760 billion a month earlier and from USD 2.479 billion a year earlier.
“In case of risks to price stability in the medium term, the National Bank will tighten the monetary policy,” the NBG said. A week ago the central bank kept its key refinancing rate unchanged at 6.5%.
“The National Bank has the appropriate power and instruments in order to avoid a high inflation. The low inflation ensures the long-term stability of exchange rate and sustainable growth of the economy,” it said.
Georgia’s annual inflation stood at 0.2% in November, far below the 2016 target of 5%. The National Bank forecasts 4% annual inflation next year.
Meanwhile, the United National Movement said on Tuesday that it will summon Finance and Economy Ministers, Dimitri Kumsishvili and Giorgi Gakharia, to the session of the parliamentary minority group next week to discuss the state of the country’s economy.
“After the [2016 Parliamentary] elections, the government, the National Bank and other state institutions show complete inaction with respect to Lari exchange rate. This is exactly why GEL is depreciating on a daily basis,” MP Davit Bakradze, leader of the parliamentary minority group, said on December 20.