The National Bank of Georgia issued an official statement today regarding the depreciation of the lari, according to which “the current exchange rate depreciated by more than [our] rational expectations would suggest.”
The statement also suggests that the reasons for the depreciation can be ascribed to the combination of the dollar’s rise in value and the depreciation of the Turkish lira.
“The reasons for the recent depreciation of the exchange rate are the combination of fundamental factors (global appreciation of the dollar, the depreciation of the Turkish lira) and expectations. Despite these fundamental factors, according to our assessment, the current exchange rate depreciated by more than what rational expectations would suggest.”
In accordance with the announced strategy, the National Bank will use all means and instruments at its disposal in order to limit excessive fluctuation on the foreign currency exchange market.
In case of a risk to price stability in the medium term, the National Bank will tighten the country’s monetary policy. The National Bank has the needed power and instruments in order to avoid high inflation. Low inflation ensures the long-term stability of the exchange rate and the sustainable growth of the economy”, says the official statement.
The Georgian lari hit another record low today, on December 20. According to the National Bank of Georgia, the exchange rate is now 1 US dollar to 2.783 GEL. The exchange rate for the euro against the lari is 1 / 2.89.
On December 15, the Prime Minister of Georgia, Giorgi Kvirikashvili stated that “our society should forget about the currency once and for all. We should look only at the difference of prices and inflation.”
One month earlier, the Government of Georgia issued an official statement regarding the instability of the Georgian lari (GEL). The regulations aim to reduce the number of foreign loans and deposits, also known as “de-dolarization.”
The government added that such an approach was unlikely to have negative effects on the economy, and that a reduction in next year’s State budget would contribute to the efficacy of the planned measures.
According to the National bank of Georgia, throughout 2016, the GEL was the strongest against USD on June 10, when the exchange rate of 1 USD against the GEL was 2.127.
In the chart below you can see the value of the Georgian lari against the euro and the US dollar throughout the year of 2016: