On the GEL REER side, our estimates point to some overvaluation. Definitely not a precise measure, especially in the short term, but still as an indication – last Friday, March 2 GEL REER at its long term trend implies the USD/GEL and EUR/GEL at around 2.75 and 2.93 respectively.

The NBG continues to purchase FX even with higher volumes. Namely, the January print came in at 155 million USD after around 100 million previously. Besides net inflows being strong, this month, the more robust growth of FC credit and only somewhat but still lower FC liquidity in the banking system looks to have contributed as well. 

Nevertheless, the other two GEL exchange rate pillars do not point to a materially stronger outlook. Namely, headline CPI inflation has declined from 9.4% in January to 8.1% in February on the back of 0.3% monthly deflation. Importantly, while the major driver still was an imported component, other measures of price dynamics have also demonstrated a moderation supporting the disinflationary  and the rate cuts outlook probably to more extent than previously envisaged. In this regard, unless the 2023 growth forecast jumps to double-digit again, we don’t think TBC Capital latest 6.4% baseline is a game changer. In fact, the January GDP print at 8.4% was only somewhat, but still lower than expected under the upwards revised outlook.