The Monetary Policy Committee (MPC) of the National Bank of Georgia (NBG) met on November 25, 2009 and decided to lower its main policy rate (the refinancing rate) to 5 percent.

In accordance with the Main Directions of Monetary and Foreign Exchange Policies of the National Bank of Georgia that was approved by the Parliament of Georgia, the inflation target is set at 6 percent for the years 2010-2012.

The annual rate of inflation was 3.2 percent in October and the average annual inflation currently stands at 2.2 percent. The growth rates of the gross domestic product and the expected price level have not changed significantly since the Committee’s last meeting.  According to the existing forecasts, year-end inflation should remain within 3-4 percent and the inflation rate for next year should stay around 6 percent.

Over the last several months, an increase in deposits has been observed in the banking sector.  It is expected that the existing rate of growth in deposits will remain unchanged for the remainder of the year.  As a result of the increase in deposits, annual growth rates for both the M2 and M3 monetary aggregates are positive.

A large amount of excess liquidity still remains in the banking system, a factor that has reduced the effectiveness of the monetary policy transmission mechanism.  Money markets interest rates have decreased sharply over the last period. On the one hand, in order to support the monetary policy transmission mechanism the National Bank of Georgia has reduced its main policy rate, on the other hand it has increased liquidity-absorbing operations through the use of certificates of deposit.  The certificates of deposit represent a risk-free asset, which should aid the commercial banks in increasing their lending.

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 December 23, 2009.