The surge in conventional tourism, higher estimates for remittances coupled with improved trade balance and broadly stable migration inflows led to an all-time high level of the monthly measure of net inflows in June, notably after the continuous improvement in the CA deficit in the first quarter. Based on TBC data, TBC Capital observes the momentum is likely to hold in July as well, not surprisingly also evidenced in the GDP coincident indicator, such as non-cash expenses.
Furthermore, TBC Capital favored measure of sentiments – the daily estimates for the structure of the deposits by the currencies, recently looks to be another important driver of the GEL regaining its value together with recently relatively higher EUR/USD, - according to Weekly Update From Chief Economist.
As of the document, it difficult to project if GEL strengthens further, despite the net inflows are strong, the sentiments are volatile.
"Nevertheless, what we can say is that if there are expectations for the GEL depreciation to take place after the elections, to a large extent those should be priced in earlier. As for the other 2 GEL pillars, we stick to the REER as broadly neutral, with the same holding for the inflation one.
Therefore, we keep an overall broadly neutral stance as a baseline with some marginal and temporary weakening, if needed, the NBG having room to intervene to support the GEL. However, also keeping in mind that unless the USD slides further, further possible appreciation pressures will probably result in higher central bank international reserves, rather than material GEL appreciation against the USD", - the document reads.
