GEL exchange rate collapse has affected both state budget and finances of your citizens. Despite? GEL exchange rate stability is one of the main reasons for ensuing macroeconomic stability of the nation, Government introduced no measure used to quit the national currency devaluation procedure that emerged at the end of 2014.
Over the last Couple of years GEL depreciation has grown to become an inseparable problem of Georgian economy. Doing this entered November 2014, turned smoother in spring-summer 2016 and renewed downfall in November 2016. National Bank of Georgia (NBG) was following this policy in synchronous regime that started beneath previous president and continued in 2016 too. However, one exception was recorded anyway. In Spring NBG tightened monetary policy and extremely cut the volume of refinancing loans. It needs to be noted that as period annual inflation rate missed target indicator as well as central bank needed to take decisive steps.
However, NBG renewed the crediting of economic banks immediately after inflation growth risks disappeared (in autumn annual inflation dropped below 1% as well as deflation was recorded for a while). In December 2016 the volume of issued credits to commercial banks made 1.5 billion GEL which is a historically maximum figure.
In 2016 GEL exchange rate slightly fell, in spring the devaluation process was replaced by extreme strengthening. It noted that this GEL exchange rate right after spring also in summer period was stable basically and was showing slight strengthening signs.
National Bank was buying USD on currency market to prevent extreme hike in GEL exchange rate. Therefore, in March-August period NBG purchased 278 million USD. At the end of August GEL slightly strengthened to 2.27 point against USD. Encouraged by GEL strengthening, NBG took sharp decisions and lowered monetary policy rate to 6.5% from 8% stage by stage. Moreover, beneath pretext of dedollarization policy, NBG also revised obligatory reserves requirements for commercial banks. Namely, beneath the NBG decision, starting June 16 minimum reserve requirements on GEL-denominated one-year resources composed 7% instead of 10%. Relating to USD-denominated resources, the reserve norm increased to 20% from 15%. Obligatory reserve norm on currency denominated resources with all the maturity quantity of 1-2 years also increased to 10% from 5%.
It is interesting that in 2003-2004 the obligatory reserve norm was equal in GEL and USD, in practice, but it ranged from 13% to 14%. Within the following years the reserve norm for GEL-denominated resources started declining, as the norm was maintained at 13% on USD-denominated resources. In 2007-2008 reserve norms were revised many times, nonetheless the reserving norm in GEL and USD was equal. Starting 2010 the NBG increased the reserve norms to 10% from 5%, and later on to 15%. As reported, starting June 16 commercial banks need to reserve 20% of attracted funds.
Starting autumn the Georgian national currency is demonstrating devaluation tendencies plus in September-October GEL exchange rate dropped to 2.30-2.31 position from 2.27. In the period the NBG was performing interventions on currency market to forestall extreme depreciation.
In August to November period, amid GEL exchange rate devaluation, the NBG supplied about 180 million USD towards the market. However, the NBG ceased interventions over the currencies market and GEL exchange rate was beating historical records day to day. For that reason, starting November as much as mid December, GEL exchange rate against USD was extremely falling in addition, on December 1 USD against GEL was strengthened to two.78 GEL. NBG intervened in currency forex market only on December 20 and sold 40 million USD. Depreciation paces were halted, though the process may erupt again in 2017, because NBG policy have not changed.
Somehow or some other in 2016 currency crisis was sharply reflected on Georgian citizens, despite beneath the government plan, for just two months in 2017 loans utilized USD will be become GEL and state budget will subsidize every 20 Tetri. This method cannot essentially alleviate condition your citizens. The truth is neither government nor NBG can respond to questions around GEL depreciation procedure that started Two years ago.
Some officials only focus on external factors, but the real whether government and NBG genuinely choose to stabilize GEL, because all steps taken by NBG within the last months were given to GEL depreciation, not its stabilization. Therefore, we ought to not expect the nation’s currency stabilization until Government and NBG did not decided to strengthen GEL exchange rate. Before, it is not easy to create any forecasts, far more so NBG actively grows money mass in turnover, although the Authorities grow budget deficit.