The Monetary Policy Committee (MPC) of the National Bank of Georgia (NBG) met on November 22, 2011 and decided to lower its Main Policy Rate (the refinancing rate) by 25 basis points to 7 percent.

Annual inflation fell even further in October, dropping to 2.3 percent. Core inflation (net of food and energy) is low as well, amounting to -0.2 percent. The decrease in the inflation rates was anticipated, although the actual decrease in the recent period is somewhat higher than one would have expected.

According to the existing forecasts, inflation is expected to remain low till the end of this year and the first half of the next one. Starting in summer 2012 the moderate increase in the inflation rate is expected, although according to forecasts, given the unchanged policy stance, the inflation rate will remain below the target.

In the recent period the indicators of the economic growth show the significant GDP growth. Hence, it is expected that the economic growth in 2011 will exceed 6 percent. Despite this increase in growth rates, the total output is still below the potential and therefore the aforementioned increase in the aggregate demand does not create inflationary pressures.

The formation of the aggregate demand and therefore the high rates of the economic activity were to a considerable degree caused by the bank credits to the economy. The growth in loans disbursed in the domestic currency is particularly worth mentioning, since it bears fewer risks for the economy. The present loan growth rates do not carry inflationary risks.

Given that the total output is below the potential and the existing forecasts indicate that the inflation in the next year will remain below the target, 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 December 21, 2011.