The Monetary Policy Committee (MPC) of the National Bank of Georgia (NBG) met on January 20, 2010 and decided to keep its Main Policy Rate (the refinancing rate) unchanged at 5 percent.

The annual rate of inflation at the end of 2009 was 3 percent and average annual inflation stands at 1.7 percent.  According to the existing forecasts, inflation should remain around the 6-percent mark in 2010.  The real effective exchange rate fluctuated throughout the year and in the end, the exchange rate depreciated by 3.6 percent. The banking sector is experiencing a liquidity surplus in domestic currency in the short term, although a long-run GEL liquidity deficit exists.

Exogenous factors are responsible for an increase in the prices of several of the main consumer commodity products.  At the same time, aggregate demand is low due to seasonal factors. This has induced the surplus of the Georgian Lari that was balanced by the Government’s operations.

According to the National Bank’s estimates, the reduction in gross domestic product for 2009 exceeded 4 percent, although a more-than 2 percent growth of the economy is expected in 2010.  Signs of economic recovery are evident, although, like in many other countries, the rate of recovery of the remains uncertain.

The influence of monetary policy in the short term markets is weak, and the national bank will activate instruments of monetary policy in order to increase efficiency of the transmission mechanism, although simulative monetary policy will remain.

The next meeting of the Monetary Policy Committee will take place on February 17, 2010.