Currency depreciation smells of speculative deals
11 December, 2014
According to financial analyst Lia Eliava, “The NBG cannot implement its key task to ensure stable prices in Georgia, which makes a huge impact on the welfare of the country. The NBG cannot meet its inflation target of six percent this year, which undermines the speed of economic growth. Low inflation is not recommended for developing economies like Georgia,” she said in an interview with Georgian Journal.
Economic analyst Soso Archvadze believes that the lari’s depreciation is caused by micro-economic factors:
“The point is that almost 60 percent of remittances come from Russia to Georgia, and this volume dropped by 20 million USD this year due to economic problems in Russia. The regional turmoil affected the inflow of investments too, which brings US dollars into the country. Also the Georgian state budget made spending blunders.
Nevertheless, Archvadze suspects currency speculation. “NBG did not use all tools at its disposal to handle the lari devaluation. Apart from interventions NBG could increase the refinancing rate, but it did not. I am inclined to think that there were speculative deals in the currency market and the NBG could not prevent it. Either it lacks competence or it is interested in making things worse. This is an element of manipulated chaos,” Archvadze said.
Eliava believes that no macroeconomic factors have affected the Georgian currency. She believes the key reason is speculative deals behind the scenes.
“Stakeholders of Georgian banks are either foreign entities or Georgians who have foreign businesses abroad. During the entire year they enjoy high profits here but by the end-year they have to streamline balance sheets for taxation bodies abroad and try to pump money out of the country for their foreign firms. Only banks are allowed to trade at the currency trade platform in Georgia, and no one except NBG can see the trade process and monitor the price-making procedure. I have solid suspicions that this unexpected and rapid depreciation of the lari was a result of speculation,” Eliava says.