NBG may tighten cash supply as inflation fears

The steadily decreasing value of the Georgian Lari is the lowest it has been against the US Dollar since 2011.

As of January 10, 1 GEL is valued at 1.7421 USD.

National Bank of Georgias (NBG) President Giorgi Kadagidze said the bank may tighten cash conditions in the financial system to address the inflation risks.

"[Policy] will only be tightened slightly if the fluctuation of the Lari exchange rate will fear the inflation risks but at present NBG does not see the inflation risks, Kadagidze told journalists.

The figures revealed the annual inflation rate in December 2013 was 2.4% - the highest it has been since October 2011, as the prices on food, tobacco, housing, water, electricity, gas and other fuels increased.

"We will shift to a drastic policy for inflation to stay within 5%, Kadagidze said.

He also noted that NBG cannot see any possibility of changing interest rates or bank reserve ratios.

Kadagidze said Georgia had a flotation money exchange rate, which meant that the currency was set by the foreign-exchange market through supply and demand, in relation to other currencies.

"In the past two years there was a deflation [a decrease in the general price level of goods and services] in Georgia and thats why we had a softened policy. Furthermore, in the fourth quarter of the year Georgia faced the budget deficit that influenced on the Lari exchange rate, Kadagidze said.

Georgian Lari depreciated against the EURO as well: 1 Euro was 2.3127 Lari a month ago and as of January 9 it had decreased to 2.3670.