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TBC Capital Published Update From The Chief Economist

29.05.23 17:00

TBC Capital published Update From The Chief Economist. According to the document, in April, the NBG bought a record-high 322.4 million USD. While, TBC Capital does not yet have the data for Mayinflows, there are no indications that those are weaker.

According to the document, daily indicators of deposits by currencies point to a shift in sentiments now with stronger growth on the FC side.

"We do not have corresponding data for May credit, but our best guess would be somewhat similar dynamics here, with LC being relatively higher. This, what we call a shock amplifier has historically been an important driver of the GEL. Indeed, when looking at balances of loans and deposits compared to FX flows, it is clear that even a small movement is comparable with what one would call an external shock, say a strong drop in tourism inflows, etc.

What do we say going forward? Probably nothing that pessimistic. We would call this shift in sentiments “a change from appreciation expectations to probably a broadly neutral stance”, rather than strong depreciation expectations as such. Nevertheless, based on the GEL REER latest assessment and an inflation outlook, we are still bearish on the GEL, though again marginally. On the REER, note the recently weaker EUR/USD being GEL negative as well as the continuous depreciation of the TRY. However, in this regard, we recall our earlier assessments indicating that a) a weaker lira has some pass-through on the GEL primarily when other regional currencies also drop against the greenback and b) a weaker TRY/GEL has an impact on Georgian bilateral trade balance, but it seems to be affecting only a bilateral rather than overall one, as in most cases cheaper Turkish imports, certainly adjusted after inflation in Turkey, primarily compete with other imports and not necessarily with domestic producers.

We also stick to our view that once everyone expects the GEL seasonality, one should no longer anticipate the pattern to hold", - the document reads.
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