The Monetary Policy Committee (MPC) of the National Bank of Georgia (NBG) met on November 26, 2008 and decided to lower its main policy rate (the refinancing rate), by 100 basis points to 9 percent.

The world is currently going through the most serious international financial crisis since the Great Depression of the 1930's. The global macroeconomic forecast is pessimistic and envisages a sharp decline in the growth rate of GDP on a worldwide level. Many nations are even expected to experience decreasing GDP levels.

Significant uncertainty remains in the global financial markets, although expectations of a global recession have increased.  According to forecasts, demand in international markets will decrease, which will have an impact on Georgia's exports. The developments in international markets as well as the Russian aggression in Georgia have weakened the confidence of local and foreign investors. The latter, in its part, is responsible for the reduction of investment and consumption. Subsequently, the demand for imports and its prices, are decreasing. Despite the expected decrease in imports, with the abovementioned factors considered, the GDP growth in Georgia is projected to slow down both in 2008 and 2009.

The international assistance package allocated for Georgia will significantly soften the adverse impact of the abovementioned factors. Using fiscal levers to channel the international aid to the economy through high capital expenditures will support economic activity.

Commodity prices are expected to continue declining in international markets, a factor which increases deflation risks. According to the inflation forecast, there is a high likelihood that the actual rate of inflation may be lower than the target rate. The low growth rate of the monetary aggregates is also putting downward pressure on prices.

Despite the fact that the elevated level of uncertainty, as in many other countries, has decreased the effectiveness of monetary policy in Georgia, the National Bank of Georgia is softening its monetary policy stance taking into account the existing forecasts on the current fundamental factors affecting the economy.

The NBG will closely monitor current developments in the economy and financial markets with the objective of achieving the forecast inflation rate and will in due course act accordingly.

The next meeting of the Monetary Policy Committee will take place on December 24, 2008.