The Monetary Policy Committee (MPC) of the National Bank of Georgia (NBG) met on March 26, 2014 and decided to keep the refinancing rate unchanged at 4 percent.
Despite keeping the rate unchanged, the Committee still considers a gradual exit from the accommodative monetary policy to be necessary, conditional on the robust recovery of the economy and the inflation forecast approaching its target. However, taking into consideration that geopolitical risks in our region have recently increased, which increases economic uncertainty, the Committee decided to keep the policy rate unchanged at this stage. The future path of the monetary policy rate depends on the dynamics of the inflation forecast, the speed of economic recovery, and the global and, especially, regional economic environment.
The MPC’s decision and forward view is underpinned by the macroeconomic forecast; according to which, inflation will reach its target of 5-6 percent in the second half of 2014. This is due to an expected improvement in aggregate demand, coupled with the transmission of the effective exchange rate movement into import prices and the removal of the base effect from the inflation rate. It is the view of the Committee that this forecast is balanced by risks from both sides, although recent geopolitical events in the region contain additional uncertainty for the economic environment. The deterioration of the economic environment in the region may affect the Georgian economy through several channels. The most important of which are a decrease in export demand and investor sentiment, and a reduction in remittances from abroad.
As for the situational background of the forecast, economic growth indicators have been improving since the 4th quarter of last year, thus contributing to the inflation level reaching its target value. Annual inflation in February was 3.5%. Preliminary indicators also indicate moderate growth in economic activity at the beginning of the current year. According to Geostat estimates, annual economic growth reached 7.8% in January. According to current data, positive tendencies will also be maintained in external demand, which will be reflected in export growth.
The NBG will continue to monitor the developments in the economy and financial markets both domestically and abroad. The NBG will use all its tools available to ensure its main objective of price stability, which in the long run leads to increased economic growth and low unemployment, as well as promote the stability of the financial sector and its development.
The next meeting of the Monetary Policy Committee will be held on May 7, 2014.