The National Bank of Georgia keeps its policy rate unchanged at 6.50 percent.

The National Bank of Georgia keeps its policy rate unchanged at 6.50 percent.

24 July, 2019

The Monetary Policy Committee (MPC) of the National Bank of Georgia (NBG) met on July 24, 2019 and decided to keep the refinancing rate unchanged at 6.50 percent.

In June, with a significant contribution from one-off factors, annual inflation rate equalled 4.3 percent. The contribution of the increased excise tax on tobacco on the annual inflation was 1.3 percentage points and has only temporary impact on inflation. It should be noted that the core inflation, which excludes food, energy and tobacco prices, stands at 1.4 percent, also indicating that the increase in inflation is only temporary. According to the current forecast, other things equal, the inflation will remain above the target during this year, will start to decline from March, 2020 and stay close to target in the medium term.

Although the inflationary pressure stemming from the exchange rate depreciation increased against the background of the external shock, in the medium-term, this pressure is balanced by the weakened demand, which is still lagging the potential level of GDP. Moreover, current nominal effective exchange rate seems to be undervalued more than the size of the current shock would suggest. Hence, the possible appreciation of the nominal effective exchange rate is expected to exert a downward pressure on inflation. Therefore, at a current stage, the Monetary Policy Committee deemed appropriate to keep monetary policy unchanged. However, if the upward pressure on inflation stemming from the exchange rate will persist, then the Committee will consider the possibility of the monetary policy tightening. 

In the first half of 2019, external sector performance continued to improve. However, at the end of the second quarter additional risks from external sector appeared. In particular, the expected revenues from tourism declined. According to current estimates, despite the external shock, the current account deficit is still expected to improve in 2019. Considering the reduced external demand (export of tourism services), the revised GDP growth forecast for 2019 equals 4.5%. 

The NBG will continue to monitor the developments in the economy and financial markets and will use all means and instruments at its disposal in order to ensure the price stability.

The next meeting of the Monetary Policy Committee will be held on September 4, 2019.