The Monetary Policy Committee (MPC) of the National Bank of Georgia (NBG) met on August 17, 2011 and decided to lower its Main Policy Rate (the refinancing rate) by 25 basis points to 7.5 percent.

Consumer Price Index decreased by 1.5 percent in July, 2011 compared to the previous month. The annual inflation rate stands at 8.5 percent. The share of food remains high in the annual rate of inflation and amounts to 6.7 percent. The core inflation net of food and energy decreased further to 0.03 percent in the month of June. The inflation in service sector is also low and stands at 1.2 percent.

In the recent months inflation shows faster decrease than it was expected earlier. According to the existing forecasts, inflation can possibly decrease even more. Presumably, by the end of this year the inflation will fall below the target level and remain low in the first half of the next year.

Based on the abovementioned, MPC continues monetary policy easing, started last month, in order to maintain the inflation at the target level in the medium term.

Recently the risk of USA economic slowdown have developed and there also are some uncertainties as regards the growth rates in the Eurozone economies. Economic slowdown in USA and Eurozone on one hand will cause the price drop on the commodity markets and on the other may be reflected in the lower aggregate demand in Georgia. This will further increase the risks of deflation. In such case the NBG will carry out additional measures.

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

The next meeting of the Monetary Policy Committee will be held on September 14, 2011.