The Monetary Policy Committee (MPC) of the National Bank of Georgia (NBG) met on March 28, 2012 and decided to keep its Main Policy Rate (the refinancing rate) unchanged at 6.5 percent.

The inflation forecast hasn’t changed from the previous months. According to existing forecasts inflation will remain low in the first half of the year. Starting in June the inflation will start growing and it is expected to reach its target value by the beginning of the next year.

The annual price change in February equaled -2.1%, the negative value of inflation mostly due to the base effect. The core inflation (net of food and energy prices) has been mostly stable for last couple years and equals to 1.9% in February.

The Georgian economy grew by 7% in 2011, which is higher than expected. Despite high growth rates the output gap is equal to zero, which indicates to the absence of inflationary pressures from the demand side.

Recently there has been a declining trend in the money market interest rates, mainly caused by the excess liquidity accumulated in the banking system. Low interest rates will stimulate the bank credit growth and overall growth in economic activity.

In the recent months the real exchange rate appreciation tendency, which began in last August, has stopped. Keeping the real effective exchange rate from excessive appreciation is important for the growth in country’s competitiveness.

Interest rates on the money market are stable and lower than the monetary policy rate, which effectively means the monetary easing. Taking this into account the Monetary Policy Committee ruled against further policy easing on this stage and 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 April 25, 2012.