NBG sells $40 million in foreign exchange auctions
By Natalia Kochiashvili
Thursday, March 26
On March 25th, 2020, the National Bank of Georgia (NBG) sold USD 40 million in foreign exchange auctions.
The NBG has released a new official exchange rate, according to which, the GEL depreciated by 0.8 tetri against the USD. As a result, the value of 1 dollar was 3.4576 GEL.The GEL has strengthened by 0.7 Tetri against the Euro. 1 euro costs 3.7370 GEL at the new rate.
This is the third intervention of the NBG to stop the depreciation of the GEL. In total, the National Bank of Georgia sold $ 100 million in foreign exchange auctions this month.
Overall, the Georgian national currency depreciated against the dollar by 66 points in the last month (from March 2 to March 25) from 2.79 to 3.45. Georgian lari depreciated against the euro by 64 tetris. The main cause of the fall of 23.6% is the coronavirus, and as a result, slow economic growth.
Minister of Economy and sustainable development Natia Turnava commented that national currencies are being depreciated around the world, including our region and therefore, GEL wouldn’t be an exception since. Therefore, it’s interesting to take a look at the national currency rates of other countries in the region. Azerbaijan’s national currency is firmly at 1.70, and even the Turkish lira, which may be considered the most sensitive currency among Georgia's neighboring countries, does not lose its positions as fast as the GEL. For example, in March, the lira depreciated by only 27 points.
If we compare dollar exchange rates on March 2nd and March 25th in other countries of the region, the result is the following: Armenian Drams devalued from 478.8 to 495.43 against USD. 1$ has equaled 66.29 rubles at the beginning of the month; however, now, $ 1 is 78.30 Rubles. As for Ukrainian hryvnia, it has depreciated against $ from 24.86 to 27.77; whilst in Moldova 1$ now equals 18.03 Leis, on March 2nd it cost 17.54 Lei.
Consequently, the credit for citizens who borrowed in foreign currency has increased. Unfortunately, the loans on dollar borrowings increased by at least 66 lari (for at least $ 100 in deposit), and by 68 lari in the case of the euro.
As of last month, the NBG published a review of deposits in the banking system. According to the NBG, there are total deposits of 26.5 billion in commercial banks operating in Georgia, 38.31% of which is in the national currency. Over the past month, the Larization coefficient of deposits increased by 0.78 percentage points.
According to NBG data for February 2020, the number of loan agreements in US dollars was 42 687; in Euro - 12 649. As for the loan amount, it was a total of USD 185,203 million and Euro 190,015 million.
The head of the Distributors Business Association, Iva Chkonia, stated that the current rate of lari is critical for business and under these conditions it is impossible for both distributors and manufacturing companies to keep prices on products unchanged. Chkonia stressed the GEL has already gone beyond what the distribution business had calculated: “The maximum rate calculated by the importing companies is 3 against the Dollar, 3.3 against the Euro.”
“If the government fails to come up with a plan, prices will inevitably rise,” said Chkonia, adding that since prices will not be very affordable, the population will start buying state-subsidized primary care products, while second and third category products might be left on the shelves, hitting the businesses hard as well.
The outbreak of the new coronavirus (COVID-19) has swept the world, with the prerequisites for a global economic recession already evident. It’s interesting what long-term effect it can have on Georgian economy.
According to preliminary calculations by the ISET research institute, the growth of Georgia's basic GDP in 2020 could fall by 4.2 percentage points as a result of the virus. The major factor driving the decline in economic activity will be how large the impact of the crisis will be on the regional and global economy. The organisation does not rule out that if the state does not respond to this challenge both financially and monetarily, the crisis will reach a historical scale.
In Georgia, the decline in tourism revenues could reduce GDP by 0.8% and GDP by 5.4% in the case of a pessimistic scenario. In the case of an optimistic scenario, remittances could reach $ 114 million.
They suggest taking into account the experience of other countries into consideration and carrying out stronger measures of fiscal stimulus to effectively communicate with the population groups that are affected the most by the crisis:
Providing low-interest loans to affected individuals or direct cash allocations for affected families, especially for families with elderly and children; so- called ‘Helicopter money’ or money transfers for families below a certain threshold; provision of financial resources needed to pay utility bills through state subsidies; encouraging companies to maintain employment levels in the coming months of the crisis.
“In turn, the NBG may reduce the minimum reserve requirements on foreign currency deposits. This will stimulate borrowing and economic activity in foreign currency without creating devaluation and inflation expectations,” ISET estimates.
