Georgia’s central bank to mitigate ‘excessive volatility’ in exchange market

The National Bank of Georgia (NBG) is set to smooth out sharp exchange rate fluctuations that occur in the context of 'excessive volatility' in the exchange market.

“The NBG will use all tools to mitigate excessive volatility in the exchange market so that the Lari [Georgian national currency] rate to remain in compliance with the fundamental factors,” announced the NBG.

While discussing the reasons behind the Lari’s devaluation, the NBG said the strength of the US dollar on the world exchange market and devaluation of the Turkish Lira were the main drivers of the weakening Lari.

“The reasons behind the recent depreciation in the exchange rate are fundamental factors (namely the strength of the US dollar and the devaluation of the Turkish Lira) and the financial market’s expectations. Despite the fundamental factors, according to our preliminary estimates, the current rate is more depreciated than the rational expectations conditioned,” said the NBG.

“Below is a graphic were you can see a comparison of the national currency rates of three Caucasian countries plus Turkish Lira in the past 30 days. The orange line shows the Georgian Lari, the blue line shows the Azerbaijani Manat, the green line represents Turkish Lira, while the red line illustrates the Armenian Dram,” said the NBG.

Today’s exchange rate saw the Lari’s depreciation hit its peak. Today 1 USD equalled 2.7412 GEL. The previous rate was 2.6837 GEL.

Similarly, today 1 EUR cost 2.8615 GEL, while the previous rate was 2.8050 GEL.

Historically, the Georgian Lari reached an all-time high of 2.74 in December of 2016 and a record low of 1.23 in December of 1995.

The exchange rate was higher at exchange booths around the country and at local banks.

Meanwhile, the NBG announced it would tighten the monetary policy to avoid inflation.

“In the mid-term period, the NBG will tighten the monetary policy in case of risks to price stability. The NBG has all the tools to prevent high inflation. However, moderate inflation determines long-term stability of the exchange rate and sustainable growth of the economy,” said the Bank.

Georgia’s monthly inflation rate amounted to 0.6 percent in November, while the annual inflation rate (Consumer Price Index change) increased 0.2 percent, showed the latest inflation data from the National Statistics Office of Georgia (Geostat).

“Last month, the cost of several basic foods and transport-related items rose. In particular, prices increased 0.7 percent for food and non-alcoholic beverages. However,” prices decreased 5.3 percent for fruit and grapes, said Geostat. (Agenda.ge)