Home
Category
TV Live Menu

• ახალი ამბები ბიზნესში •

Loading data...

The monetary policy played a key role in appreciation of the lari

5e0b29bf5bd08
BM.GE
31.12.19 14:56
998
According to TBC Research, following a prolonged period of an undervalued GEL, the domestic currency has started to recover some of its value. Since the beginning of December the GEL REER strengthened by an estimated 3.0% and the USD/GEL exchange rate moved from 2.96 to 2.87. A tighter monetary policy stance in GEL, expressed by a further rate hike in December and the sale of 20 million USD, coupled with the relaxed requirements for FX reserves, and in general NBG’s hawkish communication, have delivered initial desirable results.

Unlike the trend prior to October, November was the second consecutive month when FX credit growth contribution outpaced that of GEL, implying that the market has already started to react to the tighter monetary policy stance. In particular, with the higher interest rate differential between GEL and FX credit, the depreciation expectations have also likely weakened, at least to some extent.

However, the same (switching from FX to GEL) is less evident on the deposit side. Besides exchange rate expectations, GEL deposits are also driven by GEL credit, which is normalizing. Estimated seasonally adjusted monthly growth rates declined from above 3% (annualized 45%) in Q3 to around 1.3% (annualized 16%).
This further impacts the dynamics of GEL deposits, alongside changes in governmental deposits in banks. Typically, a change in sentiment on the deposit side takes longer, and the deposits are much less sensitive to the interest rate differential compared to credit. Though, per our judgment, there is still a certain positive tendency on the deposits side; conversions to FX having taken place in earlier months are not, at least, expressly observable.

As for the interest rate differential internationally, where a ten-year USD yield plays a key role, further widening the one has yielded a somewhat greater appetite towards the GEL, as in November, compared to September 2019, the proportion of non-resident holdings of total government securities increased from 5.7% to 7.0%. GEL securities are also attractive based on declining rates in many emerging market central banks, including those in Georgia’s immediate neighborhood.