National Bank of Georgia Increases Refinancing Rate

The Monetary Policy Committee (MPC) of the National Bank of Georgia (NBG) decided to increase the refinancing rate by 50 basis points to 7.5 percent.

The monetary policy decision is based on the macroeconomic forecast. In response to increased inflation expectations, the National Bank of Georgia continues tightening the monetary policy.

National Bank of Georgia: “According to the current forecast, at the beginning of 2016 the inflation will remain above its target value, will start decreasing afterwards and will return to its target value of 5% in the second half of 2016. The annual growth in consumer prices equaled 5.8% this October. The main factors causing the rise in inflation are still coming from the supply side, namely the increase in the input costs of production due to exchange rate depreciation and higher prices on certain imported goods. An important impact on inflation came from the one-time increase in the electricity tariff. The rise in inflation has been limited by the weak aggregate demand and decrease in the world prices of oil and food products.”

According to preliminary forecasts, the real GDP growth since the start of the year was 2.7%. The external sector and weak domestic demand are the factors which hold up the real growth.

The change in the exchange rate (GEL/USD) has caused import to adjust; thus on some level helping the elimination process of external imbalance. Since the beginning of the year import has decreased by 14%. Accordingly, it can be assumed that the impact of the existing external shock on the exchange rate has been exhausted.

Further changes in the monetary policy will depend on the inflation forecast, factors affecting it, and on general state of the economy.

Ana Akhalaia