Georgia’s central bank mitigates ‘excessive volatility’ in exchange market

UPDATED: 17:01

The National Bank of Georgia (NBG) has sold millions of dollars at the Foreign Exchange Auction to control the changing value of the national currency against the US dollar.

Today Georgia’s central bank sold $40 million at the Foreign Exchange Auction in an attempt to curb depreciation of the Georgian Lari (GEL) against the US dollar.

After NBG sold the US dollars, the weighted average exchange rate saw 1 USD equal 2.7831 GEL.

EARLIER: 13:54

The National Bank of Georgia is trying to smooth out sharp exchange rate fluctuations that occur in the context of 'excessive volatility' in the exchange market.

The NBG will use all tools to mitigate excessive volatility in the exchange market so that the Lari rate remains in compliance with fundamental factors,” announced the Bank.

While discussing the reasons behind the Lari devaluation, NBG said evaluation of the US dollar on the world exchange market and devaluation of the Turkish Lira were the main drivers of the weakening Lari.

The reasons behind the recent depreciation in the exchange rate are fundamental factors (evaluation of the US dollar and devaluation of the Turkish Lira) and the expectations. Despite the fundamental factors, according to our preliminary estimates, the current rate is more depreciated than the rational expectations conditioned,” said NBG.

Below is a graphic were you can see a comparison of the national currency rates of three Caucasian countries plus Turkish Lira in the past 30 days. The orange line shows the Georgian Lari, the blue line shows the Azerbaijani Manat, the green line represents Turkish Lira, while the red line illustrates the Armenian Dram.

The comparison graphic was made online using a tool from www.bloomberg.com.

Today’s exchange rate saw the Lari depreciation hit its peak. Today 1 USD equalled 2.7412 GEL. The previous rate was 2.6837 GEL.

Similarly today 1 EUR cost 2.8615 GEL, while the previous rate was 2.8050 GEL.

Historically, the Georgian Lari reached an all-time high of 2.74 in December of 2016 and a record low of 1.23 in December of 1995.

The exchange rate was higher at the exchange booths around the country and at the local banks.

Meanwhile, the NBG announced it would tighten the monetary policy to avoid the inflation.

In the mid-term period the NBG will tighten the monetary policy in case of the risks to price stability. The NBG has all tools to prevent high inflation. However, moderate inflation determines long-term stability of the exchange rate and sustainable growth of the economy,” said the Bank.

Georgia’s monthly inflation rate amounted to 0.6 percent in November, while the annual inflation rate (Consumer Price Index change) increased 0.2 percent, showed the latest inflation data from the National Statistics Office of Georgia (Geostat).

Last month the cost of several basic foods and transport-related items rose. In particular, prices increased 0.7 percent for food and non-alcoholic beverages. On the other hand prices decreased 5.3 percent for fruit and grapes, said Geostat.