NBG: GEL Depreciation is Linked to Coronavirus

The National Bank of Georgia has responded to the recent depreciation of Georgia's national currency Lari (GEL) with a special statement, saying that it is linked to uncertainty caused by the coronavirus outbreak.

The NBG explains reasons for the depreciation of the GEL and expresses readiness for any developments.

"The depreciation was caused by several factors. On the one hand, the spread of coronavirus globally and in Georgia triggers the expected decline in tourist flows. At the same time, the decline in international oil prices leads to the decline of foreign demand from Georgia's trading partners for oil export and a possible decrease in money transfers. As a result, the risks of reducing foreign exchange inflows have increased, which has been reflected in the foreign exchange market through the channel of expectations. There is the same situation in most countries in our region, where local currencies have declined in recent days. On the other hand, due to the restriction of air travel, the outflow of currency from Georgia to foreign countries will be reduced, as will the import of tourism services, which will have a positive effect on the exchange rate. At the same time, Georgia's reliance on remittances from oil-exporter countries has been significantly reduced, which is also a positive factor.

"The main task of the National Bank is to maintain price stability in the country, i.e to keep the low rate of inflation. Although the weakening of the external demand reduces inflation, exchange rate depreciation has the opposite effect and increases inflationary risks. The ultimate impact on inflation, and thus the response of the National Bank, will depend on which factor outweighs the others. At this stage, uncertainty about possible developments is high, but the NBG is ready for any developments. We monitor market dynamics on a daily basis and, as usual, we will use all the tools at our disposal to ensure the core mandate of the National Bank, price stability, " reads the NBG statement.

By Ana Dumbadze