National Bank of Georgia increases refinancing rate to 6%

The National Bank of Georgia has increased its refinancing rate following advice from its Monetary Policy Committee (MPC).

Today, August 12, the MPC decided to increase the Bank’s refinancing rate by 50 basis points. With this change the NBG refinancing rate stands at six percent.

The decision was made after a thorough look into the country’s macro-economic forecast, where the risks affecting the expected inflation had risen due to "external shocks”, said the Bank.

NBG said according to the current forecast, unless other "external shocks” affecting the economy occurs, by the end of 2015 the monetary policy rate will be around 6.5 percent.

In July 2015 the Consumer Price Index increased by 4.9 percent year-on-year and reached NBG’s target of five percent.

NBG said changes to the inflation rate were the economy’s natural reaction to price increases on imported goods, which were partly caused by the depreciation of the national currency Lari.

The Bank noted the country’s economic growth was hampered by external factors which negatively affected export volumes. Local demand on products was also weakened and this resulted in a reduction of money transfers.

Despite this positive trends were observed regarding external imbalances. In light of the reduced foreign inflow, changes to the exchange rate adjusted imports.

In the second quarter (Q2) of 2015, the import reduction stood at 21 percent. NBG said this meant the external shock effect on the Lari exchange rate was now over.

The Bank said it would continue to monitor the developments in the economy and financial markets and it would use "all means necessary” and tools at its disposal to ensure price stability in Georgia.

The next MPC meeting will be held on September 23, 2015.