December 1, 2016 / 3:56 PM / a year ago

UPDATE 2-Georgian central bank expects lari currency value to steady soon

(Adds new rate, analyst’s comment)

By Margarita Antidze

TBILISI, Dec 1 (Reuters) - Georgia’s central bank expects the lari currency to stop losing value soon, it said on Thursday, urging people to avoid what it called “harsh decisions” as many sought to buy foreign currencies.

The lari’s official rate hit an all-time low of 2.5871 to the dollar on Friday, down from 2.5352 on Thursday, while in commercial banks and exchange booths in the former Soviet republic the lari has been trading at 2.59-2.63.

It has been weakened by a plunge in the Russian rouble. Official data shows gross domestic product growth slowed to 1.3 percent year-on-year in October from 3 percent in the same month a year ago.

“We expect that devaluation will stop shortly,” the bank said in a statement.

It attributed the lari devaluation mainly to the U.S. dollar strengthening and strong local demand for foreign currency.

“We would recommend society and economic agents not to make harsh decisions, which will negatively affect themselves,” the bank said.

Commercial banks and exchange booths in the capital Tbilisi had been selling foreign currency with no limits on Thursday, although some customers complained of problems.

“I wanted to buy $1,000 couple of days ago and could not after visiting several exchange booths,” Tbilisi resident Tamar Maisuradze, 37, told Reuters.

Although the lari has stabilised since April and remittances from those working outside the country are rising, Georgia’s currency began to depreciate again in September.

The current account deficit rose by 47 percent year-on-year in January-October to $6.555 billion.

Prime Minister Georgy Kvirikashvili said on Tuesday that the government planned steps including taking some of the burden off individuals repaying dollar mortgages and banning online credit services.

The measures, which are still under discussion, include fixing the exchange rate for individuals repaying mortgages in dollars 20 points lower than the market rate, with the difference to be subsidised by the government.

Analysts said that might add to doubts about the lari.

“The government sounds quite prepared to use a heavy-handed approach,” Giga Bedineishvili, an independent analyst, told Reuters.

“People can even see some type of currency controls, maybe even limits to (the lari‘s) floating regime, which will affect lari very negatively.”

The central bank kept its key refinancing rate unchanged at 6.5 percent on Oct. 26 and is due to hold its next monetary policy meeting on Dec. 14.

Official data showed inflation at minus 0.2 percent year-on-year in October, from 5.8 percent the same month a year ago. The government set a 5 percent target for 2016. (Editing by Toby Chopra and Ruth Pitchford)

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