The Monetary Policy Committee  of the National Bank of Georgia decided during its meeting on October 15, to leave its main policy rate, the Refinancing Rate, unchanged at 10 percent.

The Committee noted that because of the limited participation of short-term foreign capital in Georgia, the current turmoil in the global financial markets will not have a significant impact on the financial system in Georgia. The banking sector is keeping excess liquidity.  Moreover, the new stand-by arrangement by the International Monetary Fund, the high level of international reserves and the strong capitalization of domestic banks will ensure the stability of the nation's financial system On the background of significant capital inflows anticipated from international financial institutions and other donors, it is expected that overall foreign inflows will recover and strengthen the economy's balance of payments.

Since the Committee's last meeting, certain positive trends have been observed in the banking system.  In particular, the system has once again been experiencing moderate growth in deposits and demonstrated significant increase in liquidity.  Commercial banks are still wary to issue new loans because of the perceived risks on the part of the borrowers, due to which  increase in lending to the economy has not been observed.

Existing inflation risks have not changed significantly since the last meeting of the Committee. Commodity prices, including those of oil and wheat have continued to decline.  As was forecast during the Committee's September 10 meeting, the annual inflation decreased in September, which points to the one-off character of the spike in inflation in August.  Consumer prices have dropped by 0.8 percent since last month, and as a result, the inflation has declined to 10.6 percent.  It is expected that inflation dynamics will maintain a downward trend during the remainder of the year.

At present, the monetary policy transmission mechanism is especially weak due to reduced activity on the interbank market.  The NBG will closely monitor the developments in the domestic and international financial markets and will carry out monetary policy accordingly in case the existing risks to inflation change considerably in any direction.

The next meeting of the Monetary Policy Committee will take place on November 26, 2008.