Prudent macroeconomic policy-making and strong growth in external earnings helped the GEL remain immune to the sell-off in regional currencies until early August 2018. However, the TRY’s collapse on 10 August affected the GEL through the expectations channel when the currency lost 3.9% in one day against the USD trading at 2.57 on Bloomberg. Taking into account the ongoing currency crisis in Turkey and sour global sentiment in EM currencies, we expect the US$/GEL rate to weaken to around 2.7 compared to our previous 2.6 projection for end-2018. The gradual adjustment in the US$/GEL rate is likely a necessary correction to rectify the GEL’s real gains against the TRY and RUB – Georgia’s two largest trading partners. We also believe that depending on FDI/tourism inflows and import performance, pressure on the GEL might subside in August–September 2018.
