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Georgian Currency reaches its biggest drop

By Tea Mariamidze
Wednesday, January 27
The lari has reached its biggest drop in its history since February 1999, when 1USD was worth 2.45 Gel. The National Bank of Georgia (NBG) has set a new exchange rate according to which one USD equals 2.49 GEL. The previous exchange rate was 2.46 GEL. Despite the rate of the NBG, the price of one dollar in exchange booths and banks was more than 2.53 laris.

According to the NBG, the national currency has also lost value against the euro too. Currently, 1 EUR costs 2.69 GEL while the previous rate was 2.67 GEL.

The GEL began to lose value in November 2014. At that time, one US dollar was equivalent to 1.75 laris. The National Bank intervened, but the lari continued to drop during the past year.

It should be noted that on January 22 2016, the National Bank sold USD 20 million at a foreign exchange auction. The average weighted bid rate for one USD was 2.4705. The central bank made a total of nine interventions last year with total sales reaching USD 286.96 million.

According to the United National Movement (UNM) opposition party, the current crisis has been caused by improper regulations carried out by the government.

“Improper regulations carried out by the government caused the reduction of tourism and exports. Spending should be reduced first,” UNM member Sergo Ratiani stated.

Nodar Ebanoidze, the First Deputy Chairman of the Committee on Budget and Finance, says the GEL has already suffered the major blow and it will become stable in the near future.

"External factors are important. We’ve already passed the main blow. We had a loss of 200 million and it was reflected on the exchange rate. I think that this influence is not important anymore and it should become stable in the near future, since there are no more external factors. Steps have been made to overcome the challenges,” Ebanoidze told reporters.

According to Majority PM Zurab Tkemaladze, the current developments are the result of both internal and external factors. However, the MP noted that Georgia has the most stable currency in the region.

“I cannot promise that the currency will strengthen soon but I want to note that the government is doing its best to stabilize the situation,” he said.

The Prime Minister of Georgia, Giorgi Kvirikashvili, has named the main factor of the lari are reduced oil prices in the region. He believes that there are no internal reasons of the currency devaluation.

“The depreciation of the national currency is the direct result of devaluation in the Region, caused by the reduced oil prices. There are no internal reasons. We have specific, defined steps on how to reduce the effects of external events,” he stated.

The Head of the National Bank, Giorgi Kadagidze, held a special press-conference regarding the issue. He predicted that the lari will strengthen in the near future.

“The lari’s devaluation is linked to negative expectations of market participants due to recent developments in neighbouring countries. Another factor is money amount which was maximally reduced. We predict that the exchange rate will stabilize soon,” Kadagidze stated.

The experts do not exclude the possibility that the situation will get worse.

“Instead of finding the way out of the crisis, the government only justifies itself by blaming external factors. The budget is inflated and the expenses are irrational. With this budget it is impossible to reach financial and monetary stabilization,” analyst Roman Gotsiridze said.