TBC Capital published an update from the Chief Economist. According to the report, 2022 has been a year of strong inflows. November NBG FX interventions data, released at the end of the year, confirmed net FX purchases of 110 million USD, in line with TBC Capital's expectations.
This brings the net purchases in January-November up to USD 473 million. Though, in the same period, the increase in net international reserves was only up to USD 200 million likely due to government FC conversions. Furthermore, even without migrants accounts, the increase in FC deposits over FC loans was almost USD 500 million. Historically, this accumulation or call it the “shock amplifier” was the GEL negative, however, this time the inflows are so strong, that this particular driver had not sufficient scale to make the difference in the GEL dynamics.
"Despite continuous strong inflows and the various broadly balancing positive and negative impacts in number of different scenarios, we stick to our view, that until the USD weakens further, the GEL is likely at its near term peak due the inflation and the GEL REER drivers. In particular, December CPI inflation print came in at -0.3% MoM and - 0.7% MoM when adjusted for the seasonality, in line with our expectations. We also expect other than headline measures of consumer prices to cool down this year with the time lag on the back of the lower GDP growth the latter to be evident based on YoY measure likely already in January. As for the GEL REER, the latest estimates point to only marginal, but still overvaluation, rather than undervaluation", - TBC Capital reads.
