NBG tries to sell GEL revaluation

The National Bank of Georgia is promoting its alteration of the GEL rate, holding a seminar on the subject for journalists at the Hotel complex at Bazaleti Lake on November 16. The Acting President of the National Bank of Georgia, Davit Amaglobeli, explained the bank’s monetary policy, its reasons for the rate cut and the impact this will have on further economic development.

Amaglobeli explained that the GEL rate was too stable when compared to other currencies, and the high demand for USD at the exchanges had made the previous GEL level unsustainable. The new GEL rate had not been selected accidentally and was the most optimal rate, more or less sustainable by the Bank in the foreseeable future. Amaglobeli explained that rapid change was more rational than gradual change, because a gradual decrease would probably take up to 3 months, and the population’s faith in the GEL might decrease accordingly over that time. During the last three months the GEL had gone down only compared with the USD, having risen against other currencies, by 4.5% against the EUR and 12% against the Pound Sterling.

Amaglobeli said that the GEL rate cannot impact on prices and inflation in Georgia, as it had remained stable against other currencies. Prices on oil, gold, flour and other raw materials have substantially decreased in the international market but prices on some goods have risen. “Some sellers are taking unfair advantage of the change in the GEL rate and quoting higher prices which are not sustainable in a competitive market economy,” Amaglobeli alleged.

The Acting NBG President pointed out a disadvantage of the strong GEL, i.e. it was an obstacle to dynamic economic development, as it made the country dependent on imported goods, hampering production and GDP growth. Under the new rate, exports will increase and the price of imported goods, which is quoted in USD, will rise. The revaluation and further stabilization of Lari will also substantially influence Direct Foreign Investment in 2009, as a lower GEL rate is more appealing to foreign investors. If there were a lack of significant FDI however, this would make the Georgian Government invest more in the Georgian economy, and the new taxation system developed by the Ministry of Finance, including lower income and dividend taxes, will encourage Georgian entrepreneurs to invest more, the Acting President stressed.

Amaglobeli avoided giving a direct answer to a question on how the NBG had managed to maintain a high GEL rate up till now against a background of high inflation and war. He would only say that the Bank undertook a natural exchange policy, determined by the market. His colleague David Lezhava however had advice for investors. He said that people should keep making deposits in one currency, the one they are paid in, rather than speculating, as rates were volatile at present. Alternatively, they could spread their deposits across a basket of currencies to offset the risks of any one of them.