Refinancing rate jumps 8% in Georgia, raising loan costs for 8,564 people

More than 8,000 people in Georgia will soon have to fork out more in debt repayments after an increase to the financing rate by 50 basis points, to eight percent.

The 8,564 individuals are borrowers who have loans linked to the refinancing rate. Of this number 5,838 have mortgage loans and 2,726 have business loans.

The National Bank of Georgia said its monetary policy decision to increase the refinancing rate 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.

Unless other additional shocks take place, further monetary tightening in the coming periods is not to be expected. According to the current forecast, in the beginning of 2016 the inflation will remain above its target value, will start gradual decreasing afterwards and will return to its target value of 5 percent in the second half of 2016,” read NBG’s statement.

Meanwhile figures released by the National Statistics Office of Georgia, Geostat, showed Georgia’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.

Monthly inflation in November 2015 reached 0.3 percent (0.8 percent in October) while annual inflation equalled 6.3 percent (5.8 percent in October).

NBG said the main factors that caused a rise in inflation were still coming from the supply side, namely the increase in the intermediate costs of production and higher prices on certain imported goods.

The annual growth in consumer prices equaled 6.3 percent in November. 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,” NBG said.

As for the country’s real Gross Domestic Product (GDP), preliminary forecasts showed the real growth in the first 10 months of the year was 2.8 percent. The factor hindering growth was the external sector, which, given the dire economic situation in the region negatively affected the income from export of goods and services, said the Bank.

The economic growth in the past period was mostly due to the domestic demand, which is however negatively affected by the decline in remittances and increase in the service burden of foreign currency denominated loans due to the changes in the GEL/USD exchange rate,” explained the NBG statement.

However, the Bank also outlined some positive developments in relation to the elimination of external imbalance.

Given the decrease in foreign currency inflows the change in the exchange rate has caused import to adjust. In the last three months imports have decreased by 18 percent (excluding one-offs). Accordingly we can assume that the impact of the existing external shock on the exchange rate has been exhausted. Other things equal no additional pressure can be expected on the exchange rate coming from the existing external shock,” read the statement.

The next meeting of the Monetary Policy Committee will be held on February 3, 2016.