NBG Increases Its Policy Rate by 0.5 Percentage Points to 5.5%

NBG Increases Its Policy Rate by 0.5 Percentage Points to 5.5%

NBG Increases Its Policy Rate by 0.5 Percentage Points to 5.5%

The FINANCIAL -- The Monetary Policy Committee (MPC) of the National Bank of Georgia (NBG) met on July 1, 2015 and decided to increase the refinancing rate by 50 basis points to 5.5 percent.

The monetary policy decision is based on the macroeconomic forecast, which shows increase in the inflation expectations as well as in the domestic and external risks affecting the forecast inflation. In line with the existing forecast the Monetary Policy Committee considers necessary to increase the monetary policy rate gradually to 6.5 percent by the end of the year, according to NBG.

The domestic demand remains weak. According to preliminary information in May the economic activity grew by 2.1%. The recovery of the demand is furthermore hindered by the decline in the loan growth in the recent months. The significant decrease in import also indicates the weakened demand.

The inflation rate has been increasing during the recent months with the annual decrease in fuel prices partially offsetting the inflation rise. The deterioration in economic trends in our main trade partners continues to affect negatively Georgian economy. Goods export, and remittances have decreased, while the growth rate in tourism inflows is low. At the same time the pressure on the policy of the National Bank pushes up the long-term interest rates, reduces the efficiency of the monetary policy transmission and drives up the inflation expectations. The changes in the exchange rate have already affected the import demand, which in turn ensures the adjustment of external imbalance. According to current forecast the inflation will reach its target value in the second half of 2015.

The NBG will continue to monitor the developments in the economy and financial markets and will use all means and instruments at its disposal to ensure price stability. The dynamics of further changes in monetary policy will depend on the dynamics of expected inflation, tendencies in economic growth, global and regional economic environment.

The next meeting of the Monetary Policy Committee will be held on August 12, 2015.