Lari VS Lira. Why Georgian Currency Strengthens amid the  Turkish Lira’s Devaluation

Lari VS Lira. Why Georgian Currency Strengthens amid the Turkish Lira’s Devaluation

access_time2021-11-25 12:00:01

The Georgian national currency is gaining its value  amid  a major  devaluation of the Turkish lira despite the government’s and the National Bank’s arguments during periods of the lari’s depreciation that the Turkish currency negatively affects the Georgian currency.


However, now the lira hit historic lows, while the lari is strengthening. What is the reason for this, and when did the government and the National Bank tell the truth - when they said  that the lari had lost its value  because of the lira, or now saying  that the impact of the lira’s devaluation on the lari is mitigated by the Georgian currency’s strengthening against the currencies of other partner countries?


Turkey is Georgia’s main trading partner which  currency in time of trouble - last week it fell by 12.8%, while the lari strengthening.


Since the beginning of the year, the lira has depreciated by 52%, while the lari has appreciated by 5.5% in the same period.


Experts don’t share the National Bank’s and the government’s opinion about  the interaction of these two currencies.


In particular, according to the TBC-Bank chief economist Otar Nadaraia, despite the forecast that the lira’s exchange rate will not affect the lari, it’s still expected  that it will affect the Georgian national currency. Apart from that, the lari may be hit by the dollar’s strengthening in the global financial market.


“Besides, the strengthening of the lari against the currencies of other partner countries is not strong enough to exclude its weakening. We  should not forget that the inflow of foreign exchange is hindered by the growth of the incidence rate and hospitalization in Georgia, ”he explains.


According to the Head of Research at  Galt & Taggart Eva Bochorishvili, by the end of the year the lari exchange rate will fluctuate within GEL 3, 1-3, 2 per dollar. She believes  it’s wrong to say that the lira depreciates the lari but adds that  such a sharp drop in the rate of the national currency of the main trading partner might affect the lari.


“There are expectations in Georgia that the lira’s fall  will definitely  cause the devaluation of the lari, but this factor should not be exaggerated as the lari depends on many other factors, and the lira’s exchange rate is not  the major one. Foreign currency inflows continue  recovering in Georgia, the lari is stable in relation to other currencies. The lira will not affect the lari heavily if other factors are favorable, ”she says.


Expert Nika Shengelia considers it wrong to justify the devaluation of the lari by the lira’s devaluation but  he still doesn’t exclude  some influence.


“Georgia sees  a large inflow of foreign currency, remittances have reached almost $ 2 billion that is a huge amount  for the country , they are  directed  to the foreign exchange market increasing the demand for the lari. Most likely, this year the lari will not devalue and in early  2022 the rate will be the same as in the first days of December. Georgia’s central bank  has enough reserves to prevent the devaluation which could cause a social explosion. Given that the  other factors play in favor of the stability of the lari, the government and the National Bank, for their part,  will do everything possible to keep the exchange rate, ”he concludes.


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