Georgian Central banker renews trust as easing continues

Bloomberg

Georgia’s new central bank governor said he’ll repair public confidence in the regulator following bruising confrontations with the government, as he indicated that interest rates will continue to fall.
The monetary authority “lost some credibility” due to a “quite turbulent 2015” amid clashes between the government and his predecessor over the lari’s exchange rate and plans to strip the regulator of its supervisory powers, Koba Gvenetadze said in an interview in the capital, Tbilisi, on Tuesday. The benchmark interest rate is on a “downward path” after a cut of 0.5 percent to 7.5 percent in April, the first reduction since August 2013, as data showed inflationary pressures easing, he said.
“It’s definitely in the interest of the country and the economy to restore” public trust in the bank, Gvenetadze said. The rate may fall to 5 percent to 6 percent by the end of 2017, though “the speed and trajectory and steepness will very much depend on new information we receive,” he said.
Gvenetadze, 45, became governor in March, replacing Giorgi Kadagidze whose seven-year term expired. The government repeatedly accused Kadagidze last year of doing too little to defend the lari. The currency plunged 21 percent against the dollar in 2015, rocked by a recession in neighboring Russia and the conflict in Ukraine, and Kadagidze refused to spend reserves to support it. Exports to Russia plunged to $217 million last year from $336 million in 2014, according to International Monetary Fund figures.
The government also sought to remove the regulator’s responsibility of supervising commercial banks by creating a separate financial monitoring board, a move vetoed by President Giorgi Margvelashvili.

amid criticism from international institutions that it undermined the regulator’s independence. The legislation is now being reviewed by the Constitutional Court.
Gvenetadze, who was a senior economist at the IMF in Washington for 13 years until 2015, said he opposed removing the central bank’s powers to supervise lenders and “I confirmed that” to legislators at hearings for his appointment.
While the bank is buying foreign currency to boost reserves from about $2.5 billion currently, it isn’t trying to influence the lari’s exchange rate, which is determined by the market, he said.