The Monetary Policy Committee (MPC) of the National Bank of Georgia (NBG) met on September 16, 2009 and decided to keep its main policy rate (the refinancing rate) unchanged at 6 percent.

The annual rate of inflation was -3.1 percent in August and the average annual inflation stands at 3.3 percent. The sharp decrease in inflation is attributed to the base effect. In particular, as a consequence of Russian aggression against Georgia food prices increased temporarily last August, but in the months after the conflict, prices gradually returned to their previous levels.  It is expected that annual inflation will increase during the remainder of the year and will become positive by the end of the year.

The year-on-year growth rate of the M3 broad money aggregate for August was positive for the first time since January of the current year, which points to positive trends in the economy over the last several months.

As was noted during the last MPC meeting, interest rates were expected to decrease.  Already in September, a drop in interest rates has been observed.  For the first time since 2005 at today’s auction at the  NBG one-year maturity Treasury Bills  were sold , which practically  created one-year yield curve.  The yield curve will act as benchmark for the interest rates of Lari-denominated assets and will aid in the development of the securities market.

The depreciation of the real effective exchange rate over the last year contributed to the decrease in imports and encouraged domestic economic activity, subsequently leading to narrowing of the current account deficit.

An increasing number of countries are reporting  about the beginning of recovery, although speeds of rebound are different across the board. Observations by international market participants that Euro zone economies are returning to growth created expectation of monetary policy rate increases which contributed to the recent appreciation of the Euro.

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 October 14, 2009.