TBC Capital published Weekly Update From The Chief Economist. Accoridng to the reprot, in October the GEL rates somewhat normalized after increasing mainly due to post-election related depreciation expectations. November data on the reversal of deposit growth to GEL points out to the likely further decline of GEL rates. The GEL yield curve also indicates to rate cut expectations going forward. While lower oil prices should lead to a lower inflation pressures, as the drop was on the back on new Covid variant related higher uncertainties, in Georgia’s context, contrary to the Fed’s approach, it is an argument for slower pace of the monetary policy normalization.
"The FC rates also declined, now in parallel with the GEL. Even if we see the Fed hiking rates as early as June 2022, we stick to our view that the low FC rates in Georgia will stay for a while", - the document reads.
As for the GEL, the document reads, that last week the GEL strengthened further, enabling to argue that now there could be even more room for the correction. However, it also should be noted that from the long-term trend perspective, the GEL remains slightly undervalued.
