TBC Capital published an Update From The Chief Economist. Accoridng to the document, a detailed look at the March CPI print reveals, that not only headline inflation was down, but various measures of the underlying inflation also showed a substantial moderation, including the service and overall domestic one, which are the key indicators for the NBG to start the cut cycle.
"We assign probably around 50% weight to the first easing to take place in May as there could still be a case that the central bank wishes to see more disinflationary evidence, although it is already there, in our view.
In any case, this is an additional argument for further GEL strengthening being unnecessary to curb inflationary pressures. In fact, we were betting on even higher interventions as, to only some extent, but still, recent appreciation is beyond our expectations despite the inflows being at record highs.
On the inflows side, the share of Russia has increased recently, however, stronger FC revenues are on the back of other countries as well. Here it is important to note that, while some migrants already have a resident status and, therefore, their revenues are no longer counted as tourism inflows, based on our judgment, the share of those is still small. Furthermore, based on December 2022 TBC survey results, more than half of migrants are not receiving their income stream from Russia and quite a large part is considering staying in Georgia for the medium-to-long term.
We also note that in exports the share of commodities mainly driven by the international prices, rather than the destination market, as well as re-exports consisting of low domestic value added products such as cars are considerable. On the imports side, at least in most cases, if switching to importing from other markets, the price is a question", - the document reads.
