Briefing of the NBG Governer, Mr. Giorgi Kadagidze
06 December, 2014
The macroeconomic and financial stability in the country are in no danger, - Mr. Giorgi Kadagidze, the NBG Governor stated today at the briefing. He gave the explanations about the recent Lari depreciation. Giorgi Kadagidze discussed the reasons of depreciation and assessed the policy conducted by the National Bank in this process.
“First of all I must emphasize that macroeconomic and financial stability in the country are in no danger. The National Bank guarantees that. We have often said and proved that in the past years, when successfully coping with larger and more severe shocks.
The main goal of the National Bank is price stability and as a rule the central banks in general do not comment on the exchange rate issues. However, since in this case we deal with negative expectations and consequent speculative behavior of market participants, the National Bank in order to elucidate the situation will offer several important clarifications. The Lari depreciation is caused by both external and domestic factors: together with the 7-year historical high of the dollar, all the foreign currency inflows in Georgia have weakened or declined.
Despite that, according to our estimates the said imbalance has already been reflected in the Lari exchange rate and the processes we observe for last couple days are caused by the market agiotage, which is typical for financial markets in such times.
I would also like to add that usually it is those who make emotional decisions are bearing loses. We have seen such cases in the recent past during sharp fluctuations in Lari-USD or USD-Euro exchange rate.
It should be noted that despite the exchange rate changes are more or less reflected in the prices of certain products, however we do not expect large inflationary pressure on the consumer basket as a whole, since world market prices on most commodities, like oil, wheat, sugar, vegetable oil, etc. have dropped. Prices also tend to decrease on the goods imported from those of our trade partners who have experienced sharp depreciation in the recent period. Another factor ensuring that inflation will remain at a low level is the fact that unlike the previous years, the money supply has not increased, is under control and after communication with the government we can say that no deficit-increasing expenditures will take place in December.
At this stage, unfortunately, the largest losses have been incurred by the individuals whose income is denominated in Lari but who have taken up loans in USD. The only thing we could say in this respect is that given high economic growth the national currency is expected to appreciate in the medium term, thus relatively balancing these losses out.
In the end, I would like to reiterate that if we see the increase in potential risks, in order to prevent large shocks we are ready to intervene at a significant scale and we will use all the instruments at our disposal to ensure that the current events do not have a negative impact on inflation and financial situation of the population. However it should be mentioned that the fundamental solution of the problem is the high and irreversible economic growth in the country” – Giorgi Kadagidze stated.
After the briefing the Governor answered questions of media.