TBC Capital published Weekly Update from Chief Economist. According to the report, last week, for the first time since June 2019, the NBG intervened on the FX market buying 10 million USD via currency auction. Furthermore, as April w/o auctions interventions data became available, there were small but still some net interventions purchasing USD using this instrument. May numbers will be released by the end of June.
"The latest GEL appreciation was also strongly supported by the switching to the GEL deposits, or to put it otherwise as well – an appreciation led to the Larization of deposits. Improved confidence in the local currency had an impact on the rates too. Namely, unlike previous months, some normalization or even a slight decline was evident in April. An inverted yield curve points to lower rates going forward, supported by the policy rate cuts, though seems only by the end of the year. Unlike deposits, there was some increase in the GEL rates on the credit side to be explained by the composition change as non-mortgage segment saw a strongest rise.
The dynamics for the FC rates were the opposite, however, with even lower magnitude. While the off-shore rates are widely expected to increase, we don’t think the on-shore FC yields should necessarily follow to the same extent taking into account: a) the structural long-term decline of onshore FC deposit rates not necessarily being correlated with the off-shore rates; b) more demand for the GEL funding assuming continuous increase in larization, though recent recovery in foreign currency credit is noticeable; and c) earlier we used to refer to high FC liquidity in the banking system, however, at the moment the assessment is rather neutral, but FC deposit growth even at existing record low rates remains strong", - the report reads.
