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Lira depreciates - is there a spillover effect on Lari?

6059c00d43645
Shota Tkeshelashvili
23.03.21 14:30
730
Turkey's currency tumbled as much as 15% after President Recep Tayyip Erdogan sacked the country's central bank governor over the weekend.

Last Thursday, Turkey's central bank raised its refinancing rate from 17% to 19% against Erdogan's wishes, as the bank planned to contain rising inflation in the country.

As of February, inflation in Turkey amounted to 15.6%. The central bank targets 9.4% inflation. In the current situation, Recep Tayyip Erdogan considers, that the country should soften its monetary policy in response to the higher inflation.

The high level of inflation in the Turkish economy reflects on the Georgian economy through trade and expectation channels, as high inflation sets higher prices on Turkish imports.

Today, Turkey is the major trade partner of Georgia. Georgia acquired products of 1.4 billion USD from Turkey in 2020, which was 17.6% of the total imports. The exports stood at 190.6 million USD. Total turnover between two countries amounted to 1.6 billion USD in 2020, which was 14% of total trade turnover.

Selim Chakir, the IMF Resident Representative in Georgia, also confirmed in September 2020 that Turkish lira and the economy have an impact on GEL exchange rate, citing the depreciation of lira as one of the reasons for lari devaluation.

Presumably due to this factor, fluctuation of national currency increased and in order to stop the devaluation of lari, the National Bank made an intervention of $ 40 million.