Central Bank Increases Key Rate to 7.25%

(TBILISI) -- The National Bank of Georgia (NBG) raised its key refinancing rate by 25 basis points to 7.25% to curb an inflation rate hike, saying a decision on further tightening of the monetary policy as well as its duration would depend on how quickly the exchange rate-related pressure on prices can be reduced.

According to NBG, the nominal effective exchange rate following its last monetary policy meeting on October 25 plummeted and increased pressure on inflation” (6.9% in November).

The Bank also alluded to an increase of inflation expectations in the last two months, and added that strengthening of economic activity beyond the projected rate “reduced the possibility of demand-side reduction of the inflation.”

The regulator, however, anticipates that the inflation rate would start declining with the expiration of one-off factors in the beginning of 2018.

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

The rate remained unchanged at 8% in the first three months of 2016, but went through gradual easing beginning from April and remained unchanged at 6.5% until January, 2017. The Bank increased the key rate to 6.75% on January 25 and to 7% on May 2, but kept the rate unchanged at its three previous meetings, on June 14, on July 26 and on October 25.

The monetary policy committee will hold its next meeting on January 31, 2018. (Civil.ge)