The Monetary Policy Committee (MPC) of the National Bank of Georgia (NBG) met on July 22, 2009 and decided to keep its main policy rate (the refinancing rate) unchanged at 6 percent.

The annual rate of inflation was 2.3 percent in June and the average annual inflation stands at 5.4 percent. The inflation outlook has not changed significantly since the Committee’s last meeting and inflation is expected to remain at a low level throughout the year.

The latest economic data which has become available since the Committee’s last meeting indicates that the rate of economic growth has slowed by more than expected. Accordingly, the NBG’s forecast for economic growth has been adjusted downwards. The current projection is that the contraction in the gross domestic product should exceed 4 percent in 2009.

The latest figures on remittances are  encouraging.  Relative to the last month, private money transfers in June have increased, and the annual rate of decline has slowed down, which in the end should help increase domestic demand and will contribute to economic stabilization.

It is noteworthy that  according to the latest budget supplement the budget deficit is expected to increase considerably. Along with the decline in lending by commercial banks, the increase in budgetary expenditures should aid in the stimulation of the economy.  The budgetary expenditures will in part be financed through the issuance of treasury bills.  The existence of a treasury bill market should in turn, support the development of financial markets, increase the effectiveness of monetary policy, and strengthen financial stability.

The National Bank of Georgia will closely monitor current 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 August 19, 2009.