NBG Keeps Its Policy Rate unchanged at 3.75%
06 November, 2013
The Monetary Policy Committee of the National Bank of Georgia (NBG) met on November 6, 2013 and decided to keep the refinancing rate unchanged at 3.75%.
The annual headline CPI inflation in October was 0.2%, and the price increase mostly affected seasonal products. It should be mentioned that core inflation (net of food and energy prices) has been characterized by a growing trend during the past two quarters. According to existing forecasts, inflation will remain low throughout the coming period and will approach its target value by the end of 2014.
Economic activity was growing in the third quarter. However, at present the GDP gap (the deviation from its potential level) is still negative, which pushes the price level down. The gap is expected to gradually close during the coming six quarters, thus helping to move inflation closer to its target level.
As a result of monetary easing, the credit activity of banks is gradually improving, although the demand for loans is still weak, hindering the transmission of monetary policy to the economy. Along with weakened demand, inflation is being pushed down by temporary supply-side factors, such as the base effect, changes in regulated prices, etc.
Trends in the external sector remain positive, somewhat stimulating aggregate demand. The growth rate of foreign remittances remained high in the third quarter, reaching 14.1%. The current account deficit is expected to improve as well, serving as an additional source for the increase in aggregate demand.
Given that the previous reduction of the policy rate has not as yet had its full effect on the real economy, the National Bank is sticking to the accommodative monetary policy and is keeping the policy rate unchanged. The NBG will continue to monitor developments in the economy and financial markets and will act accordingly.
The next meeting of the Monetary Policy Committee will be held on December 18, 2013.
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