Baku, Azerbaijan, October 12
By Tamilla Mammadova – Trend:
Producer price index, often seen as a leading indicator for consumer price dynamics, went up by 11.1 percent year-on-year in Georgia, Trend reports via the TBC Research Group at Georgian TBC Bank.
Exports and imports prices also increased at solid rates by 13.2 percent year-on-year and 13.6 percent year-on-year, respectively.
"At current level of lari's real effective exchange rate (REER) and the commodity prices, we maintain our earlier projection of Consumer price index (CPI) inflation reaching around 7 percent by the end-2019. We expect an additional 0.5 PP rate hike and do not rule out the foreign exchange (FX) interventions to follow," said the research.
While in the medium term the reserve accumulation stays as a priority, in the short term National Bank of Georgia (NBG) may even sell reserves more actively as the existing level already exceeds the target set by the IMF program earlier in spring, when the external sector was stronger, by around $80 million. Also, some form of quantitative tightening may be used as a policy tool.
These measures should do the trick to reverse currently sizeable lari's REER weakness. Reasonably strong external sector is also an argument for the stronger lari.
"At the same time, even if the external sector is weaker than believed, still the NBG has demonstrated the commitment to the price stability as its primary goal and, in our view, will tighten sufficiently, using the range of available tools, to counteract the inflation pressures", said the research.