National Bank of Georgia (NBG) announced its decision to tighten fiscal policy yesterday, and increased its policy rate by 25 (0.25 percent) basis points to 6.75 percent.
The National Bank of Georgia plans to increase the policy rate up to 7% during the first two quarters of this year, which will deeply affect loan holders whose loan agreements are linked to policy rates.
The NBG is responsible for monitoring inflation in the country, and sets the inflation target rate and increases and decreases the policy rate in accordance with forecasts.
You can read the full statement of the National Bank of Georgia below:
“The monetary policy decision is based on the macroeconomic forecast, according to which while demand side pressure on prices is weak, inflation is expected to be above its target rate for the most of the 2017. Nonetheless inflation is going to decline in 2018 and remain below the target. According to the forecast the temporary increase in inflation is a result of one-off events; the increase in excise taxes as well as exchange rate developments should be singled out in this regard. The latter dynamic in exchange rate was mainly driven by Turkish Lira depreciation in the second half of last year and the global strengthening of the US dollar. These new developments have pushed inflationary expectations up and in order to curb them the NBG, based on current forecast, deems necessary to gradually increase the policy rate to 7% over the next two quarters. At this stage policy rate has been raised by 25 basis points. After the elimination of the impact of the aforementioned one-off events the inflation will start declining and will stay close to the target in the medium term. Other things equal, as factors affecting inflation are exhausted the policy rate in the medium term will gradually return to its neutral rate.
As a result of weak aggregate demand, the decrease in the imported inflation and the dissipation of the base effect the annual inflation is currently at a low level. The annual growth in consumer prices equaled 1.8% in December 2016.
Positive tendencies have been observed in export developments. As a result of improved external demand growth rate of registered goods exports became positive in Q4 2016. However imports have increased as well, contributing to worsened net exports. Tourism revenues are also continuing to grow. Remittances have also increased compared to 2015.
The NBG will continue to monitor the developments in the economy and financial markets and will use all means and instruments at its disposal in order to ensure price stability in the country.
The next meeting of the Monetary Policy Committee will be held on March 7, 2017.” (sic)