May 31, 2019

The GEL likely to strengthen; no call options sold for June

Quick Update

  • As of the 31st of May the USD strengthened against the GEL by 3.2% MTD. Over the same period, estimated GEL REER also depreciated by around 2.7% and further weakened relative to its medium term average likely reflecting the overshooting.
  • Also, according to the May 29th  statement of the central bank governor, it may be argued that such depreciations are followed by the appreciation.
  • Furthermore, the NBG won’t be selling GEL call options for June as short term reserve accumulation targets are already met with buffers (see next page).
  • TBC Research “a bit more than random walk” exchange rate projection stays approximately the same with USD/GEL at 2.7 for both end of period and period average in 2019 (see TBC Economic Review: insight #9).
  • The NBG have not intervened on the interbank FX market in May 2019 via direct FX interventions. At the same time, USD/GEL exchange rate remained above its 20-day moving average implying that banks have not exercised GEL call options as well.  
  • The NBG decided not to sell the GEL call options to be exercised in June implying that if the GEL strengthens more than its 20-day moving average against the USD, the NBG will not intervene automatically giving room for the GEL to appreciate.
  • As of the end of April 2019, NBG’s gross international reserves stood at 3.6 bn USD. As for the net international reserves, estimated NIR already exceeds the lower IMF agreement threshold of 1.456 bn USD for June 2019 by around 200 mln USD.


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