Monetary Policy

National Bank of Georgia Keeps Refinancing Rate at 7%

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The National Bank of Georgia (NBG) decided to hold the refinancing rate at 7% at a meeting of the Monetary Policy Committee today. The NBG says there is no need to increase the refinancing rate at this moment.

On May 2nd, the National Bank had increased the refinancing rate by 0.25%, bringing it from 6.75% to 7%, due to increased inflation expectations in the country.  

The next meeting of the Monetary Policy Committee will be on July 26, 2017.

The National Bank of Georgia is responsible for monitoring the level of inflation in Georgia. The main monetary policy instrument of the NBG is the monetary policy (refinancing) rate – the interest rate that is applied to its refinancing loans for commercial banks. If projected inflation is above the target inflation rate, the NBG will tighten the monetary policy by directly increasing the policy rate, in order to reduce a future surge in price levels. If the inflation rate is less than the target rate of the National Bank, then normally the refinancing rate is reduced.

The inflation rate over the past four months has exceeded the National Bank of Georgia’s target of 4%, reaching 6.6% in May 2017.

The National Bank’s Decision

The decision on the refinancing rate is based on macroeconomic forecasts, that because of the impact of the supply factors in the market, inflation will remain above the targeted rate in 2017. Inflation has risen over the last few months. The NBG says the rising inflation rate is in line with existing forecasts that such increases are temporary, and that there will be a lowering trend in the second half of the year, finally reaching the targeted rate of 4% in 2018. Because inflation expectations will decrease, there is no need to tighten the monetary policy. In the absence of external shocks, and with the elimination exogenous factors affecting inflation, the monetary policy rate is expected to be lowered.

Recent joint demand indicators demonstrate different messages regarding GDP growth. While according to preliminary estimates, economic growth has slowed down in comparison with previous months, on the other hand, income from exports and tourism continues to grow at a high pace. Moreover, the volume of money transferred to Georgia is increasing.

The National Bank of Georgia says it is monitoring the economic processes and behaviour of financial markets and will use all available means to ensure price stability.

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