TBC Capital published a Weekly Update from the Chief Economist. According to the forecast of the report, if market participants expect the seasonality of the GEL exchange rate, this trend will no longer take place.
According to the report, during the last days GEL strengthened a little. The Chief Economist provides the last week's assessment of the national currency, and according to November 9, a sharp increase in currency deposits is recorded. The author of the update reviews the factors affecting the exchange rate of lari, including seasonality, expectations and the interventions of the Central Bank of Ukraine.
"Recently, the GEL has appreciated against the USD and the EUR a bit. What can we add to our November 6 stance? Probably nothing much. From the latest data release, we observe the negative impact of the elevated USD yields on the share of non-residents holding the GEL securities in October.
Also, we note an even stronger increase in the FC deposits relative to the NC, often being the indication of the sentiments. Here we once again highlight that the impact of seasonality, once most of the market participants expect one, at least could be misleading.
The same holds true for so-called election-related expectations. Summing up, October and November net inflows are likely at normalized levels, as despite an adverse impact of the sentiments and high USD yields, we see the GEL marginally but still gaining a momentum.
Although, with the NBG selling some of its recently accumulated reserves. While we do not have a relevant October data yet, we bet there are no depreciation pressures on the FX market as, based on historical behavior, we do not recall episodes of the GEL strengthening being driven by the central bank interventions, which usually are rather smoothing only, as under the often-used IMF language also for the floaters – curbing the unduly fluctuations or, put it differently, reducing the unwarranted currency volatility", - the publication reads.
