Topic of the week: CCA currencies off their peak, mild depreciation on the way

CAUCASUS / CENTRAL ASIA - Report 30 Jun 2023 by Ivan Tchakarov

The CAUCASUS and CENTRAL ASIA WEEKLY starts with the topic of the week, which discusses currency behavior in individual CCA economies. In particular, given the strong appreciation observed in the last year or so, we investigate the drivers of that robust currency performance and evaluate the degree of any possible overvaluation.

Our analysis points to a moderate degree of overvaluation for most CCA currencies, except for the Kyrgyzstani som. In particular, we find that the Armenian dram, the Azerbaijani manat and Georgian lari are about 10 to 13 percent overvalued relative to their longer-term averages. The overvaluation for the Kyrgyzstani som is somewhat larger at about 18 percent, while the Kazakhstani tenge is still undervalued at 5 percent. The Tajikistani somoni is roughly in line with underlying fundamentals.

We anticipate that macroeconomic fundamentals, including moderating remittances from Russia and worsening external positions, would be consistent with mild depreciation pressures in the second half of the year. These factors are already at play, but will intensify in the coming months.

The CCA WEEKLY also reports on the key macroeconomic releases in the region during the past week.

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