NBG: Refinancing rate jumps 50 basis points in Georgia

More than 7,000 people in Georgia will soon have to fork out more in debt repayments as the financing rate increased by 50 basis points to 5.5 percent.

The 7,663 individuals are borrowers who have loans linked to the refinancing rate. Of this number, 5,252 have mortgage loans and 2,411 have a business loan.

The country’s refinancing rate increased following a review of the macroeconomic forecast, which showed an increase in inflation expectations as well as in domestic and external risks affecting the forecast inflation.

In line with the existing forecast the Monetary Policy Committee (MPC), the NBG decided to increase its monetary policy rate gradually to 6.5 percent by the end of the year.

Refinancing may refer to the replacement of an existing debt obligation with another debt obligation under different terms. The changes in the country’s refinancing rate meant those with a loan taken out in the national currency or in US Dollars will face a loan rate increase.

Preliminary information showed the economic activity in Georgia grew by 2.1 percent in May 2015. The recovery of demand was hindered by a decline in the loan growth in recent months. The significant decrease in imports also indicated weakened demand, said NBG.

The inflation rate has been increasing in 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 negatively affect the Georgian economy,” said the bank.

Export of goods and remittances has decreased, while the growth rate in tourism inflow is low. Changes in the exchange rate have already affected the import demand, which in turn ensures the adjustment of external imbalance,” explained NBG.

The bank predicted inflation would reach its target value in the second half of 2015.

An announcement published by the non-governmental organisation Banks and Finances said: "Increasing the refinancing rate could stabilise the national currency rate. Though, it will have a temporary effect if it will not be improved the fundamental factors such as attracting more investments, improving foreign trade balance.”

Meanwhile the national currency, the Lari, has slightly gained value against the US Dollar.

From today 1 USD will cost 2.2459 GEL. The previous exchange rate was 2.2465 GEL.

The Lari has gained value against the Euro as well. From today 1 EUR will cost 2.4956 GEL from today, while the previous rate was 2.5116 GEL.

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