NBG Keeps Its Policy Rate Unchanged at 7%

NBG Keeps Its Policy Rate Unchanged at 7%

25 October, 2017

The Monetary Policy Committee (MPC) of the National Bank of Georgia (NBG) met on October 25 2017 and decided to keep the refinancing rate unchanged at 7 percent.

The annual inflation in September was 6.2%, although during the third quarter the inflation rates were slightly lower than forecast.  According to the current prognosis the inflation will remain above the target until the end of the year, whereas in the beginning of 2018, once the temporary factors will have petered out, the inflation will get close to the 3% target level. At the same time the inflation expectations have not changed in the recent periods and therefore do not create additional pressure on inflation. Hence, the Monetary Policy Committee has decided to keep the policy rate unchanged at the current stage. In case of no additional shocks the policy rate in the medium term will gradually decrease to its neutral level.

Since the beginning of 2017 the economic performance has improved, hence the National Bank of Georgia decided to upgrade the growth forecast for the current year to 4.5%. According to preliminary estimates the economy of Georgia has grown by 4.7% in the first eight months of the year. However, both domestic demand and economic activity in general are still below the potential and as such do not create additional pressure on inflation.

The improvement in economic activity was largely due to the positive development in the external sector which started in the beginning of the year and the trend has been maintained since then. Both the goods exports and tourism incomes have been growing at a high rate, whereas the volume of remittances has been rising as well, although it's still below its levels preceding the external shock. At the same time the growth in imports has been moderate. The increase in external demand is due both to the improvement in the trading partner economies and the competitive real effective exchange rate. All this is reflected in the reduction of the current account deficit.

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 December 13, 2017.