The Monetary Policy Committee (MPC) of the National Bank of Georgia (NBG) met on October 27, 2010 and decided to increase its Main Policy Rate (the refinancing rate) by 50 basis points to 7.5 percent.

Annual inflation reached 9.8 percent in September. The increase in inflation was largely caused by exogenous factors. The increase in the price of wheat on world markets caused the respective increase in the prices of the main components of consumer basket in Georgia, namely prices of bread products, corn, sunflower oil, meat and eggs. Monetary policy has limited influence on exogenous factors, although it should be mentioned that high inflation creates inflation expectations, thus puts additional pressure on prices. Hence, in order to reduce the inflation expectations and to reduce the inflation in the medium term to the target level of 6%, there is a need of monetary tightening.

In the last period the US Dollar supply on the foreign exchange market has increased, due to several factors. On one side there is an increase in foreign capital inflow, including inflows in the banking sector, and on the other side, the foreign exchange supply has increased due to the increased revenues in tourism sector. At the same time, the tendency of USD depreciation on international markets was reflected in the GEL/USD exchange rate as well.

The NBG will closely monitor developments in the economy and financial markets and will in due course act accordingly.

The next meeting of the Monetary Policy Committee will take place on November 24, 2010.