NBG Keeps Its Policy Rate Unchanged At 8.0%

The Monetary Policy Committee (MPC) of the National Bank of Georgia (NBG) met on March 09 and decided to keep the refinancing rate unchanged at 8.0 percent.

The monetary policy decision is based on the macroeconomic forecast, according to which the tightening of the monetary policy will be reflected positively on the gradual decrease in inflation expectations. According to the forecast, the inflation rate will decline after the first quarter of 2016, though it will remain around its target value.

The annual growth in consumer prices equaled 5.6% in February. The main factors causing a rise in inflation are still coming from the supply side, namely the increase in the debt service burden due to the depreciation of the exchange rate and higher prices on imported goods. An important impact on inflation came from one-time factors, such as the increase in the electricity tariff and a rise in the excise tax on tobacco and alcohol products. In the coming months, once the aforementioned factors will have been neutralized, the inflation is expected to decline. On the other hand, the inflation is limited by the weak aggregate demand and decrease in the world prices of oil and food products.

According to preliminary estimates, the real growth in January 2016 was 0.8%. The main factor hindering the growth still is the external sector. The dire economic situation in the region negatively affects revenues from the export of goods and services. The domestic demand is negatively affected by the decline in remittances and increase in the service burden of foreign currency denominated loans due to the depreciation of the GEL/USD exchange rate.

Taking into account the existing forecasts, the Monetary Policy Committee deemed that no additional policy tightening is necessary and kept the refinancing rate unchanged at 8.0%.

The NBG will continue to monitor the developments in the economic and financial markets and will use all means and instruments at its disposal in order to ensure the price stability.

The next meeting of the Monetary Policy Committee will be held on April 27, 2016. (National Bank of Georgia)