The Monetary Policy Committee (MPC) of the National Bank of Georgia (NBG) met on March 18, 2009 and decided to lower its main policy rate (the refinancing rate), by 50 basis points, to 6.5 percent.

The annual rate of inflation decreased to 2.1 percent in February. As a result, average annual inflation stands at 8.7 percent. Since the Committee's last meeting, existing forecasts point towards the increasing influence of factors which should lead to a reduction in inflation. An increase in prices has been particularly sluggish for short-term consumer goods, which reduces the public's inflation expectations. Core inflation has diminished significantly as well.

The growth rate in monetary aggregates remains negative, which is likely an indicator of the slowdown in overall economic activity. The rate of lending to the economy remains conservative. According to forecasts, the volume of imports has decreased considerably, a factor which has reduced pressure on the exchange rate.

Last week, the National Bank of Georgia introduced a new instrument, the foreign exchange auction which should add increased flexibility to the exchange rate.

The NBG 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 April 15, 2009.