Financial and macroeconomic stability of the country faces “no threat whatsoever,” head of Georgia’s central bank said on December 5 as national currency, Lari, fell to its lowest level since May, 2004.
Georgian lari (GEL) fell 2.86% against U.S. dollar on Friday evening and tumbled 11.2% since November 5.
“Usually the central bank does not comment on short-term fluctuations, but as far as we are facing worsened economic expectations and nonstandard fluctuation of the national currency I want to make a statement on this issue,” Giorgi Kadagidze, the president of Georgian National Bank, said in a televised statement on Friday evening.
He said that depreciation of GEL is caused by both internal and external factors, among them U.S. dollar’s highest level in five-year and slowdown of inflow from major sources of external financing; he also suggested that GEL’s recent rapid downward trend is also “largely” caused by overreaction from market participants.
FDI in Georgia in the first half of 2014 was USD 415.8 million, a 9.6% decline over the same period of last year; third quarter FDI preliminary data will be available on December 9. Remittances, which are one of the main sources of external financing for Georgia, were down by 6% y/y in October; there was a 15% decline in October from Russia, which is Georgia’s main source for remittances. There was 12.8%, 7% and 5.1% y/y decline in Georgian exports in August, September and October, respectively.
Kadagidze also said that although depreciation of GEL will affect on prices of some commodities, in overall inflation will not exceed the target level. Annual inflation was at 2.8% in November. 2014 state budget sets forecasted inflation late for this year at 3.5%.
“Moreover, after consultations with the government, I can say that there will be no deficit spending in December,” the central bank chief said.
“Country’s financial and macroeconomic stability faces no threat whatsoever – the Georgian National Bank is a guarantor of that and we have confirmed it more than once with our deeds during much more significant shocks,” the head of the central bank said.
Kadagidze was speaking shortly after a meeting with PM Irakli Garibashvili and government’s economic team.
PM’s office said in a statement after that meeting that causing a stir around GEL’s depreciation affects further negatively on the process, therefore “the Prime Minister has called on media and political parties to refrain from artificially straining the situation.”