The Monetary Policy Committee (MPC) of the National Bank of Georgia (NBG) met on August 19, 2009 and decided to keep the main policy rate (the refinancing rate) unchanged at 6%.

The annual rate of inflation was 0.1% in July and annual average inflation stands at 4.6%. Since the last MPC meeting  there are downside risks to inflation, with the annual rate of inflation expected to be negative in August. However, it is expected to rise by the end of the year  with end-period inflation of 3%–4%.  

Commercial banks’ deposits of both legal entities and individuals have shown stable growth during the last three months. However, against the background of recent growth of deposits lending activity still remains low. Subsequently, commercial banks’ balances on the corresponding accounts at the National Bank of Georgia have grown significantly. It is expected that excess liquidity will contribute to the reduction in the deposit and lending interest rates.     

Ministry of Finance resumed the issuance of Treasury bills on August 5th and three auctions have been held so far. In all three cases the demand was in excess of supply and the issuances were fully placed. The yields were relatively low, but together with the expected growth in credit activity, a certain rise in interest rates can occur. An electronic trade platform for the Treasury bills secondary market will start functioning in the Bloomberg trade system this week. Existence of the secondary market is essential for the Treasury bills liquidity and money market development.

The expectations that economic activity is bottoming out in certain countries have been validated in the two largest economies of the EU with Germany and France both recording positive growth rates in the second quarter. 

The National Bank of Georgia will continue to closely monitor the ongoing developments in the economy and financial markets and will in due course act accordingly. 

The next meeting of the Monetary Policy Committee will be held on September 16, 2009.