NBG tightens monetary policy to avoid further inflation

The National Bank of Georgia (NBG) has decided to increase its refinancing rate in response to increased inflation expectations.

The Monetary Policy Committee (MPC) of the Bank met yesterday and decided to increase the refinancing rate by 50 basis points to 7.5 percent.

The NBG said the monetary policy decision was based on the macroeconomic forecast, where the Bank tightened the monetary policy in response to increased inflation expectations. Further changes to the monetary policy will depend on the inflation forecast, factors affecting inflation and the general state of the economy, said NBG.

As of today, figures from the National Statistics Office of Georgia (Geostat) showed the country’s monthly inflation rate was slightly dropping while the annual inflation rate was on the rise, following price changes to several major commodities in the consumer basket.

The main factors causing a rise in inflation are still coming from the supply side, namely the increase in the input costs of production due to the exchange rate depreciation and higher prices on certain imported goods,” said NBG.

An important impact on the inflation came from the one-time increase in the electricity tariff. The rise in inflation has been limited by the weak aggregate demand and decrease in the world prices of oil and food products,” explained the Bank.

Geostat reported the October 2015 monthly inflation rate reached 0.8 percent (1.1 percent in September) while the annual inflation rate equalled 5.8 percent (5.2 percent in September).

Meanwhile, NBG forecast inflation will remain above its target value in the beginning of 2016 will return to its target value of five percent in the second half of 2016.