After weeks of speculation, the United States and Iran have reached an agreement to formally end military operations, reopen the Strait of Hormuz following demining efforts, and lift the U.S. naval blockade. The official signing ceremony is scheduled to take place in Switzerland on Friday.
However, several key issues remain unresolved. The memorandum does not include an agreement on Iran’s nuclear program. Instead, it provides an additional 60-day negotiation period to reach a technical-level agreement. It also remains unclear what consequences may arise if no deal is reached within that timeframe. Likewise, uncertainty persists over when and under what conditions maritime shipping will fully resume, whether sanctions will be lifted, and how the agreement may affect the broader regional conflict, including developments involving Lebanon.
Markets Respond as Expected
Financial markets reacted largely in line with expectations. Oil prices, equity market volatility, U.S. Treasury yields, and the U.S. dollar all declined, while equities and gold advanced.
Although gold traditionally benefits from heightened geopolitical uncertainty, its continued appreciation amid de-escalation has become a more predictable market response, reflecting persistent inflation concerns that have recently outweighed the typical safe-haven dynamics.
Despite the anticipated direction of these market moves, their magnitude raises several questions. Oil prices, which have been the asset class most directly affected by recent developments, were down by approximately 4.5% as of Tuesday morning—a relatively modest decline compared to previous geopolitical episodes.
According to TBC Capital, two factors explain this measured reaction:
First, markets had already largely priced in an eventual de-escalation. Oil prices had retreated significantly from their March-April highs, suggesting that investors were primarily uncertain about the timing rather than the outcome of an agreement.
Second, markets remain cautious about unresolved issues. The current memorandum is not a final peace agreement but rather a framework for negotiating one. While it represents a meaningful step forward, investors are still waiting for greater clarity on whether the conflict has truly ended, whether commitments will be implemented, and whether the Strait of Hormuz will reopen as planned—particularly given the fragility of previous agreements.
TBC Capital Maintains Growth Forecast
The same cautious approach underpins TBC Capital’s macroeconomic outlook.
The firm’s baseline scenario projects 7.4% economic growth for Georgia in 2026, assuming a relatively short-lived conflict with no significant secondary economic effects. If the agreed terms are maintained and negotiations continue to progress, TBC Capital sees no reason to materially revise its forecasts.
During the first quarter, commodity exports were likely the primary driver of economic growth, supported by higher global commodity prices following the escalation. Export statistics and business sector output data reinforce this assessment.
While easing geopolitical tensions may weigh on commodity prices going forward, TBC Capital expects this effect to be largely offset by a recovery in tourism revenues—much as stronger commodity exports compensated for weaker tourism activity in recent months.
This trend was already visible in May, when growth in the hospitality sector balanced softer merchandise exports. At the same time, the latest high-frequency indicators suggest some moderation in tourism revenues in June compared with May. Potential migration-related inflows will also remain an important factor to monitor.
Inflation and Interest Rate Outlook
TBC Capital continues to forecast that inflation will reach 6% by year-end, based on an assumed Brent crude oil price of USD 80–85 per barrel by December. Brent is currently trading at approximately USD 82 per barrel.
Should oil prices return to the pre-escalation level of around USD 72, this would provide grounds for a downward revision of the inflation outlook. Nevertheless, prices for fertilizers, metals, food, and other commodities are expected to remain above February levels due to supply-side constraints.
Moreover, even if production costs decline, the pass-through to consumer prices is likely to be gradual given the stickiness of inflation.
Against the backdrop of a likely easing of the conflict, the probability that the National Bank of Georgia will keep its policy rate unchanged at 8.25% has increased. Notably, seasonally adjusted and annualized monthly inflation in May was already close to the central bank’s 3% target.
However, persistent commodity price pressures and elevated inflation expectations mean that a rate increase to 8.5% cannot yet be ruled out.
Stronger Lari Expected
According to TBC Capital, foreign currency inflows remained robust in June, while factors supporting the appreciation of the Georgian lari have become increasingly pronounced.
The firm expects the USD/GEL exchange rate to finish the year within the 2.60–2.65 range, reflecting a gradual normalization of net foreign currency inflows alongside continued reserve accumulation.
Dollar Strength Likely to Ease
TBC Capital’s broader view on the U.S. dollar remains unchanged. While recent factors supporting dollar strength have been significant, they are viewed as largely temporary, whereas medium- and long-term structural challenges continue to dominate the outlook.
The dollar’s recent appreciation was driven by expectations of higher U.S. interest rates and a widening interest rate differential, reflecting stronger inflation expectations and greater flexibility for monetary tightening amid resilient economic growth.
Should expectations shift following the U.S.-Iran agreement, the post-escalation strengthening of the dollar is also likely to fade.
As of June 15, markets expect the Federal Reserve to leave interest rates unchanged through year-end. By contrast, at the end of the previous week, markets had assigned a slightly higher probability to a 25-basis-point rate hike.
Euro Outlook and Currency Strategy
Given these dynamics, TBC Capital expects the euro to continue appreciating during the remainder of the year, particularly as it still appears undervalued relative to the U.S. dollar.
From a currency strategy perspective, the firm believes this supports maintaining a relatively larger share of borrowing in U.S. dollars, while continuing to exercise caution regarding short-term positions. A final agreement has yet to be signed, and under certain geopolitical scenarios, a renewed strengthening of the dollar remains possible.
While the optimal currency mix should be determined individually for each company, TBC Capital recommends using its March “One-Page Summary” and May “Responses to Readers’ Comments” publications as practical reference points.
The full Macro Update – Georgia report is available on TBC Capital’s website:
https://tbccapital.ge/ge/publications/all-publications/singleview/30007554-macro-update-georgia
