TBILISI/SEPT. 25 (The Bulletin) — Georgia’s Central Bank raised its key interest rate for the second time in three weeks to fight rising inflation and to prop up its ailing currency.
The unprecedented intervention by the Georgian Central Bank is a warning to other economies in the region which analysts have said are facing their most turbulent period since a downturn in 2014/15 triggered currency devaluations in Kazakhstan and Azerbaijan.
In a statement, the Georgian Central Bank blamed its undervalued currency for inflationary pressures.
“Since the last committee meeting, the nominal effective exchange rate of the lari has remained undervalued and inflationary expectations persist,” it said in a statement.
Before the Central Bank raised its interest rate by 50 basis points to 7.5%, its highest level since 2016, the lari had hit 2.9741/$1 and was threatening to shift past the 3/$1 for the first time. This year the lari has lost 11.25% of its value.
On Sept. 4, the Georgian Central Bank had already increased interest rates to 7% from 6.5%. It had also said that inflation measured nearly 5%, far above its 3% target.
Kazakhstan has also warned that inflation is rising and has increased interest rates this month. It blamed rising global commodity prices for the inflationary pressures. Kyrgyzstan has also started to intervene to prop up its currency.
Central Asians have suffered two sharp economic downturns over the past decade or so. The first in 2008/9 was triggered by the Global Financial Crisis and the second in 2014/15 by a collapse in energy prices.
— This story was first published in issue 423 of the wekely Central Asia & South Caucasus Bulletin