The Monetary Policy Committee (MPC) of the National Bank of Georgia (NBG) met on February 15, 2012 and decided to keep its Main Policy Rate (the refinancing rate) unchanged at 6.5 percent.

As was expected, annual inflation dropped further in January, reaching 0.5 percent. Core inflation (net of food and energy) has a declining trend as well.

According to the existing forecasts, due to the base effect inflation is expected to decline even further in the first half of the year. Starting in June this trend is expected to be changed, although the inflation rate will remain below the target and will only reach target by the end of the year.

Despite low inflation the real exchange rate had been appreciating in the end of last year. This is related to the faster nominal appreciation of the national currency vs. currencies of main trade partners. Real appreciation on one hand causes further widening of the trade deficit and on the other causes weakening of the demand.

According to the preliminary information, the real GDP growth in the 4th quarter of 2011 was higher than expected, resulting in the forecast real annual growth of 6.8%. Of note, the remittances in January have also grown, with a 13.4% growth over last January.

Based on the aforementioned factors and taking into account the current and expected dynamics of the macroeconomic indicators in the country, the Monetary Policy Committee decided to keep the policy rate unchanged.

The NBG will continue to monitor the developments in the economy and financial markets and will act accordingly.

The next meeting of the Monetary Policy Committee will be held on March 28, 2012.