NBG Reduces Its Policy Rate by 25 basis points to 5.25%
19 December, 2012
The Monetary Policy Committee (MPC) of the National Bank of Georgia (NBG) met on December 19, 2012 and decided to reduce the refinancing rate by 25 basis points to 5.25 percent.
Both annual and core inflation were low in November, with the annual CPI inflation reaching -0.5%, mostly due to the decline in food prices and appreciation of the nominal effective exchange rate in the first half of the year. According to current information the inflation forecast for the coming 6-8 quarters went even lower since the last MPC meeting. According to existing forecast the annual inflation during the coming year is expected to remain below the target (6%).
The preliminary economic activity indicators point at the weakening of the demand in November, pushing the price level down. Despite high levels of liquidity and capital in the banking sector, credit activity is still modest, due to low demand for loans. Another factor causing weakening of the demand is the low growth rate of foreign remittances, significantly affected by the current economic situation in Europe. On the other hand, stable growth of tourism income stimulates demand growth.
The prices for the main commodities on world markets are stable. Due to the global crisis, the inflation and growth rates in the main trading partners of Georgia are declining. This is an additional factor pushing the price level in Georgia downwards.
Given that the inflation will remain below the target in the medium term, the National Bank of Georgia decided to continue monetary softening 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 February 13, 2012.
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