Georgia’s National Bank Increases Refinance Rate

The National Bank of Georgia (NBG) has increased the refinancing rate by 25 basis points to 7.25%.

The decision was made by the Monetary Policy Committee (MPC) of the NBG on December 13.

“The market surveys of the past two months indicate the increase in inflation expectations, whereas the larger than expected improvement in economic activity decreased the downside pressure on inflation coming from the demand-side,” the NBG stated, adding a monetary policy action was necessary to reduce inflation in the medium term. 

“The magnitude and duration of further monetary policy tightening will depend on how fast the pressure on prices coming from the nominal effective exchange rate will decrease,” the statement of the NBG reads.

The Central Bank added that the annual inflation in November was 6.9%, explaining it was caused by the approximate 40% increase in global oil prices in the second half of the year.

“Once the impact of these factors has faded out, inflation is expected to decrease in the beginning of 2018,” the statement reads.

However, the NBG said the economic growth indicators show an improvement in the demand. 

“The preliminary estimate of the economic growth in October is 5.7%, whereas the growth in the first ten months of the year is 4.9%, exceeding the growth forecast of the NBG. The positive dynamics are observed in goods exported and tourism and the remittances from abroad have increased as well,” the national bank stated.

The NBG started tightening its monetary policy from February 2015, increasing the key refinancing rate from 4% in February up to 8% by the end of the year. 

The last time NBG changed the key rate was in May, 2017, when the refinancing rate was increased from 6.5 to 7%.

The next meeting of the Monetary Policy Committee will be held on January 31, 2018.

By Thea Morrison