NBG increases refinancing rate to 7% to stop inflation

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

Today, September 23, the MPC decided to increase the Bank’s refinancing rate by 100 basis points. With this change the NBG refinancing rate now stands at seven 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, said the Bank.

Following this action 8,544 people in Georgia will soon have to fork out more in debt repayments. These individuals are borrowers who have loans linked to the refinancing rate. Of this number, 5,962 have mortgage loans and 2,582 have a business loan.

An announcement published by the non-governmental organisation (NGO) Banks and Finances said the number of individuals who had loans linked to the refinancing rate increased by 336 percent in September 2015 compared to the previous month.

After increasing the refinancing rate circulation of the national currency will be reduced. This will cause a general price reduction which will accordingly contribute to the strengthening of the national currency Lari. Though, reducing the national currency in circulation will negatively affect the economic growth,” said the NGO's announcement.

Meanwhile NBG president Giorgi Kadagidze said if incomes were restored and investments resumed, the Lari might strengthen back to its previous rate.

The current exchange rate is a very heavy burden on our population, so the main priority is to take all measures to ease this burden both in the mid-term and long-term periods," Jadakiss said.

There are some positive trends - a record low oil price, decreased prices on wheat and sugar. All of this has a positive impact on us,” he said.

The NBG president said it was not expected for the Lari to further devaluate.

Meanwhile, the Lari started to appreciate devaluation after the Bank took strong action.

From today, September 23, 1 USD will cost 2.4086 GEL. The previous exchange rate was 2.4499 GEL.

The Lari also slightly gained value against the Euro. From today 1 EUR will cost 2.6880 GEL, while the previous rate was 2.7632 GEL.