The authorities adopted a more flexible exchange rate policy in mid-2009, moving away from the daily fixing of exchange rates through the Tbilisi Interbank Currency Exchange and instead adopting weekly foreign-exchange auctions. Downward pressure on the lari picked up in the second quarter of 2010 and it depreciated to Lari1.89:US$1 in mid-June 2010. A stronger US dollar, lower than expected foreign direct investment (FDI) inflows and signs of a widening trade deficit in the second quarter were the main pressures on the lari. In a bid to prevent a further fall of the lari against the US dollar, the NBG increased the volume and the frequency of auctions to support the currency, and raised the refinancing rate by 300 basis points in June 2010 until February 2011. As a result of the NBG's intervention, pressure on the lari has eased. We forecast that the lari will gradually appreciate over the forecast period to average Lari1.72:US$1 in 2012.