TBC Capital published update from the Chief Economist. According to the document, last week, the GEL depreciation pressures were only marginal and short-lived as by the end of the week, evidenced by the reversal, the latest trend of excess FX supply to the market has restored. Besides supplying USD, certainly the NBG interventions, this time through the public auctions, have positively impacted the sentiments as well. While sentiments often play an important role, fundamentals point to the continuous appreciation pressures.
"From our three pillars, the net inflows remain strong, and it will require a lot those to turn GEL-negative. Namely, recently, the NBG bought almost USD 2 billion – for simplicity, the amount which may be seen as an excess supply. We do not yet have the August data, but we assume the central bank has been staying on the buying side. Therefore, not our baseline, but even if net inflows weaken substantially going forward, again, it will require a lot to get to the shortage. At the same time, what about selling the reserves, if deemed appropriate and based on which indicators? We believe TBC Capital’s remaining two GEL pillars jump in here. Namely, from the GEL REER perspective, we have been bearish for a while, though we note that recently, the GEL is back to its estimated long-term trend and only partially due to some weakness last week, as the major reason is higher August PPIs in Georgia’s major trading partners. Definitely, there at least may be other, more pessimistic measures of the trend, however, based on the measures we deem as the most appropriate, from this pillar perspective, our stance has changed from the bearish to the broadly neutral. And what about the third pillar, - inflation? Here, recently elevated oil prices and the Russian petroleum export ban are GEL-supportive. Well, not in a way the inflation to materially impact an easing cycle, but rather the undershooting to be more temporary than expected. Summing up, we change our stance towards the GEL outlook over the next 12 months or so from marginally bearish to broadly neutral", - the document reads.
