The Monetary Policy Committee (MPC) of the National Bank of Georgia (NBG) met on March 25, 2015 and decided to keep the refinancing rate unchanged at 4.5 percent.
The monetary policy decision is based on the macroeconomic forecast, according to which the risks and expectations affecting the forecast inflation have risen due to external shocks. Despite the appreciation of GEL nominal effective exchange rate, the recent depreciation of GEL vs USD has been reflected in the increase in the intermediate costs related to USD-denominated debt service. Hence certain increase in the inflation rate is expected in the coming months. Taking into account that both external and domestic demand have significantly weakened, the Monetary Policy Committee considers the impact of the aforementioned factors on the inflation to be short-term in nature and these factor will not give rise to inflation risks in the medium term. Therefore, the Monetary Policy Committee considers necessary to keep the monetary policy rate unchanged. The phased exit out of accommodative monetary policy will be implemented together with improvement in domestic and external economic situation.
According to existing forecasts by the end of 2015 inflation will remain within 5%. Annual inflation in February was 1.3%. The forecasts significantly depend on exogenous factors and contain risks of changing in both directions.
The deterioration in economic trends in our main trade partners continues to affect negatively Georgian economy. In January and February merchandise exports, remittances and tourism inflows all decreased. The domestic demand has also weakened due to the increase in USD-denominated debt service costs. Hence both domestic and external demand has decreased. The output gap remains negative. The change in the exchange rate caused by the decrease in foreign currency inflows is probably sufficient to decrease import demand, which in turn will assist to restore external balance. Based on the aforementioned the aggregate demand is expected to be weak during the year and not to create inflationary pressure from demand side.
The NBG will continue to monitor the developments in the economy and financial markets and will use all means and instruments at its disposal to ensure price stability. The dynamics of further changes in monetary policy will depend on the dynamics of expected inflation, tendencies in economic growth, global and regional economic environment.
The next meeting of the Monetary Policy Committee will be held on May 6, 2015.