Finance Minister: “National currency will stabilise, gain value”

"The national currency is expected to appreciate in the mid-term period,” says Georgia’s Finance Minister Nodar Khaduri.

The Georgian Lari (GEL) has been a popular topic of discussions for the past two months since it started depreciating against the US dollar and Euro. Since then the Lari has fluctuated, but in the recent election period it depreciated steadily.

To control the changing value of the Lari against the US dollar, the National Bank of Georgia (NBG) have sold millions of dollars at the Foreign Exchange Auction recently.

NBG explained external shocks no longer impacted the national currency however the Lari continued to fluctuate due to "temporary factors” such as "several large transactions” plus pre-election expectations.

This is a graphic by Bloomberg were you can see a comparison of the national currency rate within the last month. The comparison graphic was made online today at 12.19pm Tbilisi local time using a tool from www.bloomberg.com. 

The Parliamentary Elections took place on October 8 but the election period is not over - Georgian legislation states a second round of elections must take place before November 2 to determine the remaining seats in Parliament.

Typically during the election period the Lari stagnates as businesses temporarily slow their activities until the elections are over and results are announced, and this lack of activity can affect the national currency.

As mentioned above, NBG has intervened  to mitigate the short-term fluctuations of the Lari. Yesterday NBG sold $40 million USD at a Foreign Exchange Auction, where the average weighted bid rate of GEL to USD was 2.3525.

This was the third intervention in October. So far this month NBG sold $100 million at the Foreign Exchange Auction, which comprised of yesterday’s intervention plus October 6 auction where NBG sold $20 million and October 3 auction where $40 million was sold.

This graphic shows the changing Lari rate against the US dollar over the past year. One year ago 1 USD cost 2.3550 GEL while in February 2016 the Lari's depreciation hit its peak. At that time 1 USD equalled 2.5000 GEL. The comparison graphic was made online today at 12.19pm Tbilisi local time using a tool from www.bloomberg.com.

These interventions slowed depreciation of the Lari, however the currency is continuing to fall against the US dollar and Euro.

From today 1 USD will cost 2.3527 GEL. The previous rate was 2.3365 GEL.

Similarly, from today 1 EUR cost 2.5920 GEL while the previous rate was 2.5900 GEL.

These are the short-term fluctuations,” said Georgia's Finance Minister. He was optimistic about the future stability of the Lari and said budget expenditures were balanced and this would not negatively affect the Lari.

He reiterated international financial intuitions, including the International Monetary Fund, projected Georgia’s economy would grow this year more than originally expected. 

Next year will be much better. Before the end of this year we expect higher economic growth,” said Khaduri.

Georgia's Economy Minister Dimitry Kumsishvili also shared the Finance Minister's opinion about the future of Lari.

He said the fluctuating GEL rate would not impact next year’s Budget.

Our market is open. We have a floating exchange rate. Accordingly, when an exchange rate is established as a floating rate it is based on demand and supply. This is the kind of market we have,” Kumsishvili said. 

Meanwhile NBG said it would continue to make interventions in the foreign exchange market and either purchase or sell foreign currency to keep the country’s foreign exchange reserves at a stable level.

Find more about NBG’s monetary policy here.