The Monetary Policy Committee (MPC) of the National Bank of Georgia (NBG) met on June 16, 2010 and decided to raise its Main Policy Rate (the refinancing rate) to 6.25 percent.

The annual inflation rate in May stood at 4 percent.  Inflation forecast indicators have increased since the Committee’s last meeting.  According to the existing forecasts, if the monetary policy stance remains unchanged in the medium term, the increase in consumer prices may exceed six (6) percent.
 
The annual growth rate of the broad money M3 aggregate surpassed 40 percent in June.  The growth of the money supply is on the one hand a result of economic fiscal stimulus while on the other hand, it is a product of the growth in lending to the economy since the start of the year.  The growth rate in the money supply is not in accordance with the growth rate of the economy and creates inflation risks in the medium term.

According to the preliminary data, just like April and March, the trade deficit in commodity products deepened in May which was a result of increasing domestic demand.  The deepening trade deficit, coupled with lower than expected capital inflows during the first half of the year and the appreciation of the U.S. Dollar on the world markets resulted in the devaluation of the Lari.

Taking into consideration the abovementioned factors, in order to keep inflation within the bounds of the inflation target, a need to tighten monetary policy has arisen.

The NBG will closely monitor 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 7, 2010.