On May 18, the Parliament of Georgia heard the Annual Report of the National Bank of Georgia for the year 2004, presented by President Gotsiridze. President stated that the last year’s work of the Bank is characterized by positive as well as negative trends. The severe fluctuations of the exchange rate of lari last summer can be considered as one of the serious drawbacks – the lari appreciated by 36 points against the USD in a short period. At this point, it is difficult to make forecasts on economic development. This can be considered as a mistake of the Bank as it was possible to avoid it by adequately using appropriate tools.President discussed the main goals of the Bank’s monetary policy being the assurance of price and rate stability. During 2004, inflation, the main indicator of the financial year, amounted to 7.5% instead of the planned 5-6%, although this increase can be regarded as normal. The interest of the foreign capital in the Georgian banking system was an important event in the reporting year. Foreign investments increased in the banking sector. Banking system’s assets deposits increased considerably. Foreign exchange reserves also increased, reaching the two-month import equivalent. In 2004, the income from the management of international foreign exchange reserves reached GEL 7.9 million. President Gotsiridze supposed that this indicator will double this year, following the increased efficiency of the management of these reserves. President regretted the failure to reach the moderate growth of monetary base last year. The reserve money in circulation grew by around 44% which contained some threat due to the inflationary pressure and conditioned the instability of the lari rate. However, the situation improved from September. Irrespective of the new reality in the monetary market and the inflow of the excess foreign exchange, the National Bank will continue its efforts to maintain the stable exchange rate of lari. It is difficult to manage the increased money supply received from privatization, although the coordinated activities with the government will allow to ensure the sustainability of the financial system. The question of MP Irakli Iashvili if it is possible to reduce the interest rates on commercial bank loans, was responded positively: President explained that this depends on several factors: reduction of commercial banks’ expenses, the increase of their capital, and reasonable management of compulsory reserves. Since the management change at the Bank, the average weighted interest rates in credit and T-bills auctions have reduced significantly. So the demand-and-supply-driven rates are being established in the market. In this respect, the design of the deposit insurance system will be an additional stimulus. With the help of the German experts, the Bank is working on the deposit risk insurance issues.