The Monetary Policy Committee (MPC) of the National Bank of Georgia (NBG) met on June 24, 2009 and decided to keep its main policy rate (the refinancing rate) unchanged at 6 percent.

The annual rate of inflation was 2.2 percent in May and the average annual inflation stands at 6.1 percent. The forecasted inflation has increased since the Committee’s last meeting, although overall inflation is expected to remain at a low level throughout the year.

According to the existing estimates, gross domestic product decreased by more than expected during the first quarter of the current year.  The volume of foreign direct investment has also decreased as well as the level of transfers from abroad, factors which for years were the main driving force of economic growth. 

Despite this, there are clear signs that like in other parts of the globe, the nation’s slump in economic activity is showing signs of bottoming out.  In particular, the local real estate market prices have stabilized over the last couple of weeks.  In addition, global market prices of several commodities especially those of metals have increased, which should aid in the restoration of Georgia’s export revenues. Monetary aggregates have stabilized and banking sector deposits have increased as well.

Over the last month, the National Bank’ interventions on the foreign exchange market have been limited to the use of foreign exchange auctions and the official exchange rate is determined on the interbank market on the basis of the deals concluded on that venue.  The National Bank’s interventions are minimal in the functioning of the foreign exchange market.  The abovementioned changes have aided the development of the interbank foreign exchange market, where the turnover (volume) has increased considerably over the last period.  The development of the foreign exchange market will in turn increase the stability and efficiency of the market.

At the same time, the foreign exchange swap mechanism has also been implemented successfully which should increase the availability of loans to individuals and legal entities in domestic currency and decrease dollarization.

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 July 22, 2009.