The Monetary Policy Committee (MPC) of the National Bank of Georgia (NBG) met on December 13, 2017 and decided to increase the refinancing rate by 25 basis points to 7.25 percent.

According to the current forecast from the beginning of 2018, once the temporary factors will have petered out, the inflation will start decreasing. The nominal effective exchange rate has noticeably depreciated since the last meeting of the committee, increasing the inflation pressure relative to the previous forecast (such scenario was discussed in the Monetary Policy Report of November 2017). At the same time the market surveys of the past two months indicate the increase in inflation expectations, whereas the larger than expected improvement in economic activity decreased the downside pressure on inflation coming from demand-side. Based on the aforementioned, a monetary policy action is needed in order to reduce inflation in the medium term. At present the Committee decided to increase the policy rate by 25 basis point. The magnitude and duration of further monetary policy tightening will depend on how fast the pressure on prices coming from the nominal effective exchange rate will decrease.

The annual inflation in November was 6.9%, which, among other factors, was caused by the approximately 40% increase in global oil prices in the second half of the year. The effect of one-time factors, including the increase in excise taxes, on the inflation rate is around 3 percentage points. Once the impact of these factors has faded out, ceteris paribus the inflation is expected to decrease in the beginning of 2018.

The economic growth indicators show the improvement in the demand. The preliminary estimate of the economic growth in October is 5.7%, whereas the growth in the first ten months of the year is 4.9%, exceeding the growth forecast of the National Bank of Georgia. The positive dynamics is observed in the goods export and tourism and the remittances from abroad have increased as well. However the goods import growth rate has also increased in the recent months. Despite this growth in imports, the significant improvement in the current account deficit is expected compared to the previous year.

The NBG will continue to monitor the developments in the economy 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 January 31, 2018.