The Monetary Policy Committee (MPC) of the National Bank of Georgia (NBG) met on July 7, 2010 and decided to keep its Main Policy Rate (the refinancing rate) unchanged at 6.25.

Consumer prices fell by 0.3 percent in June 2010 as compared to the previous month mainly due to the influence of seasonal factors. The abovementioned decline stemmed from the seasonality of agricultural products, which was partially offset by the increase in medicine prices. The annual inflation rate stood at 3.7 percent. Notwithstanding the recent decline of the inflation rate, according to the current forecasts, the increase in consumer prices will equal around 6 percent in medium term. 

In spite of decline, the growth rate of monetary aggregates remains high.  GDP grew at the rate of 4.5 percent during the first quarter of the current year. The turnover of the VAT paying companies and the export and import statistics point towards a growing trend in economic activity. According to the preliminary information, loans to the economy have grown at the rate of 10% from the beginning of the year up to June. Loans denominated in Lari have grown by 26% and FX denominated loans have decreased by 3.2% taking into account exchange rate changes.

Crude oil prices have been showing a declining trend recently. According to the existing forecasts, significant changes in oil prices are not expected during the year. The inflation rates in Georgia’s main trade partners have also shown a declining trend.

The base effect has played a considerable role in the increase of economic indicators and monetary aggregates, therefore, the information at this stage was deemed not sufficient to tighten the monetary policy. Due to the abovementioned and the fact that the monetary policy rate (the refinancing rate) has been increased by 125 basis points at the previous Monetary Policy Committee (MPC) meeting, the MPC decided to keep the rate unchanged.

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

The next meeting of the Monetary Policy Committee will take place on July 21, 2010.