The National Bank Of Georgia Keeps Its Policy Rate Unchanged At 7.25%

The National Bank Of Georgia Keeps Its Policy Rate Unchanged At 7.25%

13 June, 2018
The Monetary Policy Committee (MPC) of the National Bank of Georgia (NBG) met on June 13, 2018 and decided to keep the refinancing rate unchanged.

In line with the current forecasts at the beginning of 2018 inflation rate declined towards the target level of 3% and stood at 2.5 percent in May. According to the forecasts, other things equal, inflation will be around the target throughout the year. Although aggregate demand is approaching the potential level of output, it still remains below it, thus exerting a downward pressure on inflation. Given relatively high volatility on international financial markets in recent period, the risks of having inflationary pressure transmitted from the main trading partner countries increased. Consequently, the Committee again deemed it appropriate to maintain the moderately tight monetary policy at this stage. The gradual easing of the policy will be considered once the factors pushing inflation upwards are sufficiently weakened.

At the beginning of 2018, high growth of economic activity persisted. Based on preliminary estimates, in April economy grew by 6.5 percent annually, while in the first four months the annual real growth stood at 5.5 percent. The preliminary estimates reveal higher economic activity than the NBG forecasts indicated earlier. Hence, if the trend persists, the growth in 2018 will be relatively high as well, supporting the narrowing of the output gap at a faster pace. 

In line with the economic recovery, the growth rate of imports accelerated compared to last year and reached 23 percent in the five month of the current year, indicating an increase in domestic demand. On the other hand, the favourable trend in the external sector persists. Since the beginning of 2018, tourism revenues (25 percent annually) and exports (28 percent) have been increasing at a fast pace. Positive dynamics of remittances (21 percent) is also carrying on. 

To encourage the attraction of funds in lari, the Monetary Policy Committee decided to decrease the minimum reserve requirements on local currency funding from 7 to 5 percent. 

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

The next meeting of the Monetary Policy Committee will be held on July 25, 2018.