The NBG made two buy-side interventions on the 6th and the 7th of June, purchasing 30 mln USD in total. The decision may be explained by the aim to smooth the sharp appreciation of the GEL against the USD, also possibly supported by falling oil prices and lower expected inflation at that time. The year-to-date FX interventions amounted to 216 mln USD or an estimated 3% of the same period GDP.
As of the 2nd of July, the GEL REER is strongly undervalued and is likely to strengthen going forward (see more in TBC Research quick update: “The CA deficit improved and the GEL undervalued” and forthcoming monthly update).
No GEL call options* are sold by the central bank, implying no automatic interventions if the GEL appreciates below its 20 day moving average.
Considering the NBG has already bought a substantial amount of reserves and the GEL has significantly weakened posing inflationary risks, it is highly unlikely that the NBG will buy reserves if the GEL strengthens in coming weeks.
Source - TBC Research
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