BAKU, Azerbaijan, Dec.30
By Tamilla Mammadova – Trend:
Subdued demand and the post-lockdown recovery in supply helped ease inflation pressures in Georgia, Trend reports via the International Monetary Fund's (IMF's) report.
"Accordingly, National Bank of Georgia (NBG) lowered the policy rate three times by a cumulative 100 bps since the reopening and signaled a cautious easing bias reflecting weak aggregate demand. Since September, however, the NBG has kept rates on hold given continued exchange rate depreciation which could if sustained feed into inflation expectations," the report said.
Credit growth (at constant exchange rates) slowed to 12 percent in September (year-on-year) compared to 18 percent in February. Credit growth was driven by loans for large enterprises, partly reflecting increased demand for lari funding in light of depreciation pressures, and mortgages, which have been supported by government subsidies.
Non-performing loans increased to 2.3 percent in Q32020 as the partial moratorium on loan repayments remains in effect.
"System-wide regulatory capital ratios declined marginally below end-2019 levels; and retained earnings helped banks to sustain capital levels despite proactive loan provisions. As of end-September, loan dollarization was 57.5 percent (up 2.2 percentage points compared to end-September 2019), while deposit dollarization was 61.6 percent (down 2.1 percentage points compared to end-September 2019)," the report said.
After the announcement of the augmentation of the EFF arrangement and additional donor support, the lari stabilized. Lower-than-projected Foreign Echange (FX) sales sustained net international reserves at $1,335 million (at program rates) as of end-June, $370 million above the adjusted target ($966 million).
After peaking at $3.9 billion at end-August 2020, gross international reserves (GIR) declined to $3.7 billion at end-October as the NBG increased its FX sales to prevent disorderly market conditions since September and anchor inflation expectations given the strong exchange rate pass through. As of November 30, the NBG has cumulatively sold about $866.5 million this year.
"The path of the pandemic, the availability of effective treatments, and the associated impact on economic activity, are inherently difficult to predict. Consistent with the October 2020 WEO, staff assumes that social distancing will persist into 2021, but will then fade as vaccine coverage expands and therapies improve, with the acute phase of the pandemic over by end-2022. Consequently, economic activity in contact intensive sectors, such as in services, will continue to suffer in the near term," the report said.