Page 25 - GEORptDec17

7.0 FX
Georgia - Foreign exchange rate
Jun-16
Sep-16
Dec-16
Jan-17
Mar-17
Jun-17
Sep-17
Currency (units per EUR) (average)
2.45
2.59
2.80
2.87
2.64
2.70
2.94
Currency (units per USD) (average)
2.19
2.31
2.65
2.70
2.47
2.41
2.47
Georgian central bank reassures markets that depreciation is temporary
The depreciation of currencies in Georgia’s main trade partner countries - Azerbaijan, Turkey, Armenia and Russia - has put pressure on the Georgian lari, which lost some 40% of its value in 2014-2015. The lari stabilised and began to appreciate in the first part of 2016, but began to depreciate again in November, reaching a record low exchange rate of GEL2.7 to the dollar in early December and January.
The Georgian central bank has intervened 24 times on the foreign exchange markets since January 2016 to manage the exchange rate, and had begun to ease monetary policy after raising its refinancing rate from 4% to 8% in 2015 in order to boost growth.
Since April, the central bank gradually eased monetary policy by cutting the rate from 8% to 6.5% in four interventions, responding to the appreciation of the Georgian lari and a decline in inflation. At a mid-December meeting, it decided to keep the rate unchanged, saying that the depreciation was due to one-off factors and that the currency would stabilise.
The Georgian central bank received a strong political opprobrium for its handling of the depreciation in 2014-2015. The ruling Georgian Dream party publicly criticised the nominally politically independent regulator for causing inflation, and the latter came close to losing its responsibility to oversee the banking sector in what international observers deemed to be a political gesture.
The 7% depreciation against the US dollar that the Georgian lari has experienced since September is due to temporary market factors, the country's central bank said in a statement on November 2.
Echoing similar developments in neighbouring countries, the Georgian lari depreciated by some 40% in 2014-2015 down to GEL2.78 to the dollar. However, starting from January this year the currency had been appreciating and spent months at a stable exchange rate ranging from GEL2.39 to GEL2.43 to the dollar.
But since September the exchange rate increased again, moving to GEL2.61 to the dollar as of November 2. According to the regulator, the depreciation is temporary and casued by consumers' "false expectations" of depreciation in the autumn.
"People had high expectations that the lari would lose its value in the autumn despite the fact that there were no grounds for that. The expectations influenced the national currency only in the short term," the statement reads.
The regulator reassured markets that the Georgian economy is on a solid growth path, bolstered by increased export and tourism receipts that were up
25 GEORGIA Country Report December 2017 www.intellinews.com