Exchange rate of the Georgian national currency, Lari (GEL) hit a record low against U.S. dollar on May 29 after falling to 2.7997.
GEL’s previous all-time low of 2.7846 per U.S. dollar was recorded in December 2016.
Georgian currency started sharp depreciation in November 2018, when it fell by 15 Tetri against USD during a month. As of November 8, it was trading at GEL 2.76.
This was followed by a period of appreciation, hovering around 2.65-2.69 during five subsequent months, only to start slipping again by the end of March, 2019. As of March 26, GEL was trading at 2.7 against USD.
Over the past 20 days, the national currency depreciated by 9 tetri against USD.
Many economic experts linked the national currency depreciation to external factors generating negative expectations.
Giorgi Kepuladze, founder of the Society and Banks, a local non-governmental organization, said that market players started to accumulate reserves in USD, out of concerns about the free-falling Turkish Lira. He says the government needs “to create a buffer” against such external shocks through “diversification of both our economy and our trade partners.”
Another economic expert, Giorgi Tsutskiridze noted that “expectations are negative, prompting individuals and businesses to purchase foreign currency. At this moment, negative expectations are appreciation of USD appreciation and depreciation of the Turkish Lira,” he noted.
Nika Shengelia, Doctor of Economic Sciences, said the government and the National Bank fail to work in a synchronized manner, pushing the exchange rate further down. He expects the GEL to stabilize at 2.85 against USD.
President of the National Bank of Georgia, Koba Gvenetadze assessed the Lari depreciation as “short-term fluctuations,” saying that economic fundamentals were sound and improving, but noting that it is impossible to have a full picture until the balance of payments data for the first quarter of 2019 is available.
He also noted that “since the floating exchange rate absorbs shocks, it can be said all other things being equal, such depreciation will be followed by a period of appreciation.”