Page 34 - GEORptDec19

defending the currency. The central bank has now sold forex reserves three times this year. The previous two interventions were carried out in August and September. The dollar sales totalled $62.8mn.
Separately, the NBG reduced the minimum required reserves for foreign currency liabilities, thus releasing some $750mn to banks. To fight inflation, the regulator hiked its key policy rate to 8.5%.
The dollar traded at 2.9880 versus the GEL in the early hours of November 26. A failure to intervene might have resulted in the breaching of the 3.00 threshold, a line that is apparently defended by Georgia’s monetary authority. The $20mn was sold at an average rate of 2.9699 GEL. After the intervention, the GEL strengthened to 2.971.
The Q3 balance of payments data are yet to be released, but the Q2 figures were encouraging: the current account deficit narrowed by 63% y/y to $127mn and the current account gap for the rolling 12-month period ending in June contracted by 44% y/y to $777mn. The volume of direct investments also decreased, as major transport projects were completed—but FDI still remained larger than the CA gap at $129mn in Q2 (down 56% y/y) and $786mn (down 48% y/y) in the rolling 12 months ending June. The figures are not much larger than the CA deficit, but a coverage ratio of over 100% is plainly robust.
The Asian Development Bank (ADB) has revised its 2019 forecast for Georgia’s current account balance as a share of GDP to -7.3% (previously -7.9%). For 2020, the current account balance as a percentage of GDP is anticipated at -7.1% (previously -7.8%).
The government said that there was no fundamental basis for the GEL weakening. On the contrary, the currency is undervalued by 7% to 8%, deputy finance minister Niko Gagua stated.
Gagua said that there was an exaggerated reaction on the market, possibly due to low confidence in the lari caused by social or political events. Tbilisi has been roiled in the past couple of weeks by demonstrations against the ruling Georgian Dream party which has refused to adopt a proportional voting system in time for the 2020 general election. In Gagua’s estimation, the underlying factors—GDP and the current account deficit—could not be the cause of the depreciation as they were stable.
“Although FDI is down, it is higher than the current account deficit. This is an important positive factor and therefore we cannot talk about negative factors in the fundamental parameters,” he said.
34​ GEORGIA Country Report​ December 2019 ​ ​www.intellinews.com