The Monetary Policy Committee (MPC) of the National Bank of Georgia (NBG) met on March 7, 2017 and decided to keep the refinancing rate unchanged at 6.75 percent.
According to the current forecast, in line with what has been stated before, the CPI inflation in 2017 is expected to temporarily increase due to one-time factors and remain above the target value. This year the consumer prices will mainly be affected by supply side factors, such as the increase in certain commodity prices on world markets, the increase in the excise tax, and the appreciation of USD in the previous period. At the same time both core and domestic goods and services inflation remain at low levels. Once the effect of one-time factors affecting CPI inflation is exhausted, it will decrease and is expected to go below its target in 2018. According to the recent information there are factors affecting the inflation forecast in both directions. On one hand the actual inflation is higher than the forecast, which could exert additional pressure on inflation expectations. On another hand due to the improvement in the external sector indicators the pressure on the GEL exchange rate has decreased, potentially reducing inflation expectations. Despite the fact that the National Bank of Georgia still considers appropriate to increase the policy rate to 7% in the first half of the year, at this stage, until the trends become more certain, the Monetary Policy Committee decided to abstain from the change in the policy rate.
According to preliminary estimates the economic growth in January was high, however the output gap remains negative. Thus the domestic demand is still weak. At the same time its growth is supported by the present rates of credit growth. The trends in the external sector are positive as well. Due to the increase in external demand in the beginning of 2017 the goods export is growing, and so is the income from tourism. Also, compared to the previous year, the remittances have significantly increased, although this indicator is still below its 2014 level. The growth in imports is notable as well.
The NBG will continue to monitor the developments in the economy and financial markets and will use all means and instruments at its disposal in order to ensure the price stability.
The next meeting of the Monetary Policy Committee will be held on May 2, 2017.