NBG Reduces Its Policy Rate by 25 basis points to 4.5%
27 March, 2013
The Monetary Policy Committee (MPC) of the National Bank of Georgia (NBG) met on March 27, 2013 and decided to reduce the refinancing rate by 25 basis points to 4.5 percent.
According to existing information, the inflation forecasts for the coming 4-6 quarters have gone further down since the previous meeting of the MPC. According to the current forecasts, it is expected that the headline CPI inflation will remain below its target level throughout this year and will approach it in the second half of 2014.
Both headline and core inflation were low in February, with the headline annual inflation reaching -2.1%. Negative values of inflation were mainly caused by the decrease in food prices. The base effect and the reduction in regulated prices (electric power and garbage collection services) were important as well.
The economy grew by 2.8 percent in the fourth quarter of 2012 indicating the weakening in the economic activity at the end of the year. Decline in aggregate demand pushes the price level downwards. Decrease in import growth rates in January and February is another indication of slowdown in domestic demand.
In February and March the credit activity still remains weak in the country due to the low demand for loans, leading to the slowdown in aggregate demand. Low credit activity also weakens the interest rate channel of the monetary transmission.
Given that the inflation is predicted to remain below the target in the medium term, the National Bank of Georgia decided to continue monetary easing and to reduce the Monetary Policy Rate.
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 May 8, 2013.
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