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Economic Fundamentals Supporting Stable Lari

Lari remained broadly stable in 2014 while other currencies significantly lost their values against dollar. However, weaker external environment supported depreciation pressures as was anticipated and since mid-November lari has shown greater volatility. Lari lost 12.4% of its value against the dollar and 0.8% against the Euro year to date. However, it seems that lari is oversold and should more closely reflect fundamentals in the medium term. Inflation remains subdued (2.8% in November) and falling world commodity prices are helping economy to contain inflationary pressures in the face of currency depreciation. However, weaker lari is probably a gain for the economy, as depreciation could lead to substantial gains for price competitiveness and improve current account deficit through weakening Lari’s NEER and REER in the medium-term.