10.09.2008: NBG Reduces Bank Rate by 1.0 Percentage Point to 10.0%
10 September, 2008
The Monetary Policy Committee (MPC) of the National Bank of Georgia decided during its unscheduled meeting on September 10, to reduce its Main Policy Rate, the Refinancing Loan Rate by 100 basis points, to 10 percent.
The Committee noted that bank activity has slowed significantly due to increased business risks and the ongoing liquidity deficit. It is expected that the existing environment will cause banks to manage their risks conservatively in the medium term, reducing the banks’ ability to expand their operations aggressively, which will influence the money multiplier and the growth rate of the velocity of money adversely.
The MPC also discussed minimum reserves for banks and decided to lower the minimum reserve requirements to 5 percent, a factor which should resists the decline in the money multiplier. The abovementioned changes will take effect from October 2, 2008.
It was noted during the Committee’s meeting, that despite the recent military conflict, inflationary pressures have not intensified. Although according to the Statistics Department, the inflation rate as measured by the consumer price index was 12.8 percent, the reason for the increase was mainly due to a growth in the prices of several agricultural products (cabbage, herbs, salads) from the period of August 10 to the 20th, which was presumably caused by a temporary supply bottlenecks affecting. An observation of the price dynamics on the abovementioned goods indicates that the prices have returned to their initial (pre-war) levels.
It was also noted that money supply decreased considerably during the recent military conflict, a factor which should have a positive effect on the reduction in the general level of prices. However, a sharp or a less than expected change in the money supply may have a negative effect on economic growth and on the inflation rate of the following periods. Due to the abovementioned conditions, it was deemed necessary to lower minimum reserve requirements, which should on the one hand provide and free up additional liquidity for banks and on the other hand increase the money multiplier, therefore increasing the money supply.
The National Bank of Georgia decided to introduce refinancing operations according to the August 29 decision of the committee. The aim of the announcement is to provide short-term liquidity to the banking system in order to avoid a sharp decline in credit creation. In addition, the Board of the National Bank decided to introduce a special lending facility in the amount of GEL 150 million for the banking sector.
The existing inflation risks have not changed since the last meeting of the MPC. Prices of the main commodities, including those of oil and wheat products have continued to decline.
The next meeting of the Monetary Policy Committee will take place on September 17, 2008.
The Committee noted that bank activity has slowed significantly due to increased business risks and the ongoing liquidity deficit. It is expected that the existing environment will cause banks to manage their risks conservatively in the medium term, reducing the banks’ ability to expand their operations aggressively, which will influence the money multiplier and the growth rate of the velocity of money adversely.
The MPC also discussed minimum reserves for banks and decided to lower the minimum reserve requirements to 5 percent, a factor which should resists the decline in the money multiplier. The abovementioned changes will take effect from October 2, 2008.
It was noted during the Committee’s meeting, that despite the recent military conflict, inflationary pressures have not intensified. Although according to the Statistics Department, the inflation rate as measured by the consumer price index was 12.8 percent, the reason for the increase was mainly due to a growth in the prices of several agricultural products (cabbage, herbs, salads) from the period of August 10 to the 20th, which was presumably caused by a temporary supply bottlenecks affecting. An observation of the price dynamics on the abovementioned goods indicates that the prices have returned to their initial (pre-war) levels.
It was also noted that money supply decreased considerably during the recent military conflict, a factor which should have a positive effect on the reduction in the general level of prices. However, a sharp or a less than expected change in the money supply may have a negative effect on economic growth and on the inflation rate of the following periods. Due to the abovementioned conditions, it was deemed necessary to lower minimum reserve requirements, which should on the one hand provide and free up additional liquidity for banks and on the other hand increase the money multiplier, therefore increasing the money supply.
The National Bank of Georgia decided to introduce refinancing operations according to the August 29 decision of the committee. The aim of the announcement is to provide short-term liquidity to the banking system in order to avoid a sharp decline in credit creation. In addition, the Board of the National Bank decided to introduce a special lending facility in the amount of GEL 150 million for the banking sector.
The existing inflation risks have not changed since the last meeting of the MPC. Prices of the main commodities, including those of oil and wheat products have continued to decline.
The next meeting of the Monetary Policy Committee will take place on September 17, 2008.
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