The Monetary Policy Committee (MPC) of the National Bank of Georgia (NBG) met on December 21, 2011 and decided to lower its Main Policy Rate (the refinancing rate) by 25 basis points to 6.75 percent.

Annual inflation fell even further in November, dropping to 1.9 percent. Core inflation (net of food and energy) is low as well, amounting to 0.4 percent.

In the third quarter of this year the real growth of the economy reached 7.5%. Nevertheless, the output gap is still negative, indicating that this growth in aggregate demand does not bear inflationary risks.

In the fourth quarter the growth of bank loans to the economy has decreased, indicating the weakening of the domestic demand. Given that the current trends indicate the weakening of the demand the inflation forecast had been revised downwards.

According to the existing forecasts, inflation is expected to remain low in the first half of the next year. Starting in summer 2012 the moderate increase in the inflation rate is expected, although given the unchanged policy stance, the inflation rate will remain below the target. Hence the Monetary Policy Committee of the NBG considered it appropriate to continue easing the monetary policy and decided to decrease the policy rate by 25 basis points.

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 January 18, 2012.