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Georgian lari real exchange rate sharply depreciates

Business Materials 19 February 2021 19:39
Georgian lari real exchange rate sharply depreciates

BAKU, Azerbaijan, Feb.19

By Tamilla Mammadova – Trend:

The Georgian lari real exchange rate sharply depreciated in monthly terms against all main trading currencies,Trend reports via the ISET-PI, a think-tank based in the International School of Economics of Tbilisi State University.

The Real Effective Exchange Rate (REER) depreciated by 2.9 percent relative to the previous months, and also by 7.4 percent, relative to the same month of the previous year.

Notably, the lari real exchange rate depreciated with respect to the euro and the USD by 3.3 percent and 0.4 percent respectively in monthly and by 17.1 percent and 10.7 percent respectively in yearly terms. REER also depreciated with respect to the two major trading partners – Turkey and Russia by 4.6 percent and 4.9 percent respectively in monthly terms and appreciated by 4.4 percent and 1.7 percent in yearly terms.

The Monetary Policy Committee (MPC) of the National Bank of Georgia (NBG) met on December 9, 2020 and February 2, 2021, and decided to keep its Policy Rate unchanged at 8 percent.

The committee has taken into consideration a significant increase in prices in international commodity markets, persistent upward pressure on inflation due to rising production costs stemming from prolongation of pandemic-related restrictions and depreciated exchange rate, uncertainty related to the recovery of global economic activity.

In addition, the downward impact of weak aggregate demand on forecasted inflation is weakened by the depreciation of the nominal effective exchange rate, while the high dollarization of the economy fortifies the transmission of exchange rate fluctuations to inflation.

Depreciation of the REER is typically associated with domestic export goods gaining competitiveness on the foreign markets, but it also translates into increased prices on imported goods. Overall, REER-related variables had a small negative contribution to the real GDP growth projections.

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