Georgia’s National Bank raises its policy rate by 0.5%

At the extraordinary meeting of the Monetary Policy Committee of the National Bank of Georgia (NBG) on September 25, it was decided to raise the refinancing rate by 0.5 percentage points from 7% to 7.5%.

The National Bank cites inflation expectations as a result of the depreciation of the GEL as the main reason for the increased refinancing rate.

“On September 4, 2019, the Monetary Policy Committee of the National Bank of Georgia started tightening the monetary policy which aims at neutralizing inflationary pressures following the exchange rate depreciation,” the statement released by the regulator reads.

It also says that the nominal effective exchange rate of the GEL remained unchanged after the previous meeting of the Committee, with inflation expectations still in place. Therefore, the extraordinary meeting, the Monetary Policy Committee decided to increase the refinancing rate by 0.5 percentage points.

“The National Bank constantly monitors the information coming from the economic processes and financial markets and will use all the instruments at its disposal to ensure the stability of the prices,” the regulator stressed.

The NBG also noted that the external sector data still indicates a positive trend.

“Specifically, the balance of trade in goods and services continued to improve in August, which, together with tightening monetary policy, promotes the exchange rate through the expectations channel and, as a result, provides the desired inflation dynamics over the medium term,” it added.

The next meeting of the Monetary Policy Committee will be held on October 23, 2019.

To note, at the previous meeting of the Committee in early September, the NBG decided to raise the refinancing rate by 0.5 percentage points from 6.5% to 7%. Moreover, the National Bank said preliminary data indicated improved economic growth. Nevertheless, aggregate demand remains below the potential, partially offsetting pressures from the exchange rate. According to the forecast, other things equal to the inflation will remain above the target during this year, will start to decline from March 2020 and stay close to target in the medium term.

In addition to this, the regulator said that according to preliminary indicators, the export of goods increased considerably in January-July.