A joint report by the European Investment Bank and the European Bank for Reconstruction and Development states: “Monetary policy — carried out by the National Bank of Georgia — has kept inflation under control, thus increasing the central bank’s credibility over the past decade. “The National Bank of Georgia has notably developed and modernised its liquidity management tools since the adoption of its inflation-targeting mandate. Measures adopted by the National Bank of Georgia have improved access to lari liquidity over the past decade.”

 

According to the report, the National Bank imposed a higher risk weight on non-hedged foreign currency loans to banks to reduce possible risks and, even before the pandemic, imposed stricter lending requirements. These tools may prove to be a very good way to mitigate the negative impact of the COVID-19 crisis.

 

“As of September 2020, 56.1% of all loans and 60% of total deposits were denominated in foreign currency. These statistics are past the peak of around 2015/2016. This is mainly due to the National Bank of Georgia’s mitigating actions and the implementation of the “larisation” programme. The results of the policy efforts are more visible on the asset side of banks’ balance sheets, with a significant increase in GEL-denominated loans since 2015. Nonetheless, businesses’ and households’ deposits in local currency also represent a higher share in 2020 compared to 2015"- says the joint report of the European Investment Bank and the European Bank for Reconstruction and Development.

 

According to the same document, the introduction of a more sustainable TIBR interbank interest rate index in 2018 and a framework agreement on repo transactions facilitated the development of liquidity in interbank markets and reduced short-term fluctuations in interest rates. The growing volume of unsecured transactions is still the main activity of the interbank market, while repo operations show a decreasing trend.

 

Source:  https://www.eib.org/attachments/publications/georgia_country_diagnostic_en.pdf