The Monetary Policy Committee (MPC) of the National Bank of Georgia (NBG) met on September 15, 2010 and decided to increase its Main Policy Rate (the refinancing rate) by 50 basis points to 7 percent.

Annual inflation reached 9.5 percent in August. The increase in inflation was largely caused by a rise in the prices of agricultural products. Core inflation rose in August as well.

Since the last Committee’s meeting, current-year economic estimates indicate higher growth for the economy - six (6) percent. The expedited pace of growth of the economy is mainly a result of fiscal stimulus, which was supported by increased lending of the commercial banks.  Lending to individuals has expanded notably, which represents a significant source for the formation of aggregate demand. The avid growth in consumer loans granted to individuals, increases inflation pressures through increased demand.

Prices at Global commodity markets have increased recently. Over the last month, the international price of wheat increased by 4.3%, and the price of sugar rose by 13.5%.  Inflation also picked up in August in all of Georgia’s neighboring countries. 

High inflation is caused by exogenous factors, for which monetary policy has limited influence. Although dynamics of core inflation indicates an increase of inflation expectations, therefore tightening of monetary policy is needed.

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 October 27, 2010.