The Lari comes under pressure
Overview:
Economic data in Georgia is encouraging – growth is returning, inflation is below target, the current account deficit has halved and the fiscal deficit is on track. Performance under the IMF program remains strong and this external anchor has helped to maintain confidence despite a number of adverse external shocks: the war with Russia in August 2008; the drying up of capital inflows during the global financial crisis; and lower prices for Georgia’s key exports. The authorities moved from a heavily managed float to a more flexible exchange rate precisely to manage these shocks. The currency (the Lari) has, though, come under sharp depreciation pressure in recent months as global risk appetite has dived once more due to the Greek crisis. The central bank has responded by hiking its key rate 125 bps.