NBG keeps its refinancing rate unchanged at 4.5%

The Monetary Policy Committee (MPC) of the National Bank of Georgia (NBG) has met this week and has decided to keep the refinancing rate unchanged at 4.5 percent.

This decision was made at yesterday’s meeting based on the country’s macroeconomic forecast, according to which the risks and expectations affecting the forecast inflation had risen due to external shocks.

Yesterday’s MPC meeting was arranged for the purpose of discussing ways to maintain financial stability in the country. The meeting saw NBG president Giorgi Kadagidze meet representatives of Georgia’s business sector and strategize ways to stop the national currency depreciating further against the US Dollar.

NBG expected the inflation rate in Georgia to increase in the coming months. The existing forecasts showed by the end of 2015, inflation will remain within five percent. Annual inflation in February was 1.3 percent.

"Taking into account that both external and domestic demand have significantly weakened, the Monetary Policy Committee considers the impact of the aforementioned factors on inflation to be short-term in nature and these factor will not give rise to inflation risks in the medium term,” noted NBG.

The Bank said when there was an improvement in the country’s domestic and external economic condition, NBG would remove itself from the Accommodative Monetary Policy step-by-step.

The Bank noted the deterioration in economic trends with Georgia’s main trade partners continued to negatively affect Georgia’s economy.

"In January and February merchandise exports, remittances and tourism inflows all decreased. The change in the exchange rate caused by the decrease in foreign currency inflows is probably sufficient to decrease import demand, which in turn will assist to restore external balance.

"Based on this, the aggregate demand is expected to be weak during the year and not to create inflationary pressure from demand side,” NBG said.

The next meeting of the Monetary Policy Committee will be held on May 6, 2015.