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The IMF Welcomes NBG’s Policy to Support Larization

The IMF Welcomes NBG’s Policy to Support Larization

“The IMF welcomes the recent increase in reserve requirements for foreign currency deposits, and reduction for Lari deposits, which will help promote de-dolLarization”, – IMF Mission Chief Ms. Mercedes Vera Martin noted in an interview with Forbes magazine.

Representative of the Fund notes, that since mid-2014, Georgia has been hit by external shocks and NBG’s respond on the shocks has been adequate.

“The response of the NBG to this shock was appropriate. The NBG allowed the exchange rate to absorb the external shock without further hurting exports and the economy while safeguarding foreign exchange reserves. In line with the inflation targeting regime, the NBG increased its policy rate to keep inflation close to its 5-percent target in 2015. So far banks have held up well despite the depreciation; which is in part a testimony to the diligence and quality of the NBG’s financial regulation and supervision in preventing banks from taking on excessive risk. The Fund also welcomes the collaboration of the NBG and the government on a comprehensive de-dolLarization strategy as this will improve the resilience of the economy and limit the risks associated with foreign-currency lending”, – Mercedes Vera Martin noted.

IMF representative declares, that dolLarization, which refers to the extensive use of foreign currency in the financial system and the economy in general, makes the economy more vulnerable to exchange rate movements. It also increases financial stability risks.

“Cross-country experience shows that macroeconomic stability, including a low and stable inflation rate, and exchange rate flexibility help to successfully de-dolLarize an economy. Georgia’s economic performance is therefore promising, and a successful inflation targeting framework should help reduce the attractiveness of dollar savings and dollar lending. Exchange rate flexibility makes less attractive to lend and/or borrow in foreign currency. The IMF welcomes the recent increase in reserve requirements for foreign currency deposits, and reduction for Lari deposits, which will help promote de-dolLarization”, – Martini notes.