TBC Bank Group has published a report. According to the report, GEL exchange rate depreciation since June 2019 has been the major factor behind the rise in inflation up to 7% as of the end of 2019. In response to higher inflationary pressures, the NBG tightened the monetary policy rate from 6.5% at the beginning of September to 9.0% as of the end of 2019. A tighter monetary policy stance in GEL, coupled with the strong external sector, contributed to a stronger GEL exchange rate. By the end of 2019, the USD/GEL exchange rate stood at 2.87, down by 3.0% QoQ. The monthly inflation dynamics indicate some moderation of inflation by the end of 2019. According to the latest projections of the central bank, CPI inflation is projected to gradually decline towards the target, starting from 2Q 2020, before reaching the target by the end of 2020.
Despite tighter monetary policy in GEL, lending growth remained solid, mostly on the back of accelerated FX lending by the end of 2019, supported by the lower reserve requirements and ample bank liquidity in FX. As of the end of 2019, the bank loan portfolio went up by 16.1% YoY, excluding the exchange rate effect, mostly on the back of business lending (+23.3% YoY excl. FX effect), strongly supporting the solid economic growth. At the same time, retail growth was relatively slow (+6.0% YoY excl. FX effect), owing to tighter prudential regulations. Despite some acceleration of FX lending, de-dollarization of the financial sector remains a top priority for the central bank; however,in future rather more attention is expected to be devoted to de-dollarization of liabilities.
