The Monetary Policy Committee (MPC) of the National Bank of Georgia (NBG) met on May 25th, 2011 and decided to keep its Main Policy Rate (the refinancing rate) unchanged at 8 percent.

Annual inflation reached 13.5 percent in March 2011, out of which 11.8 percentage points was due to the increase in food prices. Annual core inflation (excluding food and fuel prices) has been declining in the recent months and was below 2% in April. Annual inflation in the service sector is still low at 1.3%. Low levels of the core inflation and inflation in the service sector indicate that the demand influence on prices is weak. 

According to the existing forecasts the inflation will keep decreasing and will be around 8% by the end of the year.

The loan activity is in accordance with the expected growth rate of the economy; the risk of possible demand driven inflation is low.

In the recent months world prices have the tendency to decline. Namely, the world prices of oil and sugar have decreased. It is expected that this fact will accordingly affect Georgian consumer market.

Based on the actual and expected dynamics of loan growth and economic activity and taking into account the price decrease tendency in the world markets, in the medium term the inflation forecast will decrease to its target value. Therefore the MPC decided to keep its policy rate unchanged.

The NBG will closely monitor developments in the economy and financial markets and will in due course act accordingly.

The next meeting of the Monetary Policy Committee will take place on June 22th, 2011.