Posted: 2 weeks ago

Factors that Strengthen Geogian Lari

Over the past 30 days, Georgia’s national currency against USD strengthened by over GEL 0.29. After the June 3 trading session, GEL against USD strengthened to 3.15 points. Extreme growth in the GEL exchange rate has raised various questions – why does GEL strengthen?

What factors grow the GEL exchange rate?! Economists and experts have named several factors: opening economy, opening land borders, growing money transfers from abroad, tightening monetary policy rate, and positive expectations.

As noted by Eva Bochorishvili, head of the Galt & Taggart research department, the factors that strengthen the GEL rate cannot be specified at this stage. Anyway, positive expectations also affect the GEL exchange rate. For instance, public expectation of accelerating vaccination process and expectations that strict lockdowns will not be introduced again. Furthermore, the National Bank’s decision to raise the refinancing rate to 9.5% may be one of the key factors strengthening the GEL exchange rate. “Deposits dollarization has also declined and the pressure on GEL has been alleviated. This factor

has also made a positive effect on GEL”, Eva Bochorishvili said. Meanwhile., TBC Bank's senior economist Otar Nadaraia has named growing money transfers as one of the key factors that are strengthening the GEL exchange rate. Namely, in April Georgia’s exports grew by 70% to $378 million, up 22% compared to even 2019. In this month, money transfers to Georgia rose by 154% to $194 million, while incomes from the tourism industry for the first time after the pandemic exceeded $50 million.

This positive trend was maintained in May too. “Furthermore, the National Bank of Georgia has tightened the monetary policy rate and the GEL resource turned expensive. These factors have coincided with growing crediting in foreign currency. For instance, before April the new credits were issued entirely in GEL and the banking sector had accumulated excessive USD. But now foreign currency-denominated crediting has been restored and in this situation, this trend equals to currency interventions and this factor strengthens GEL”, Nadaraia noted. If these positive factors do not turn negative, GEL strengthening tendency will be continued, Eva Bochorishvili said.