NBG decreases policy rate 50 basis points to 6.75%

Georgia is starting to move away from its tightened monetary policy set by the National Bank of Georgia (NBG) in February 2014 – the time when the national currency (Lari/GEL) started to fall against the United States (US) dollar and the Euro.

Following advice from the Monetary Policy Committee (MPC) today, July 27, NBG decreased its refinancing rate by 25 basis points. With this change the NBG refinancing rate now stands at 6.75 percent.

The decision was made after a thorough look into the country’s macro-economic forecast, where the risks affecting the expected inflation required starting the process of moving out from the tightened refinancing rate, said the bank.

According to the current forecast, unless other factors affecting the economy occur the monetary policy rate will be around six percent in the midterm period,” said NBG.

As a result of a lower refinancing rate, people with loans in foreign currencies will have to pay less for their debt obligations.

Last year there were more than 7,000 borrowers who had loans linked to the refinancing rate.

For the past few months the Georgian Lari has remained steady at around 2.1 GEL for every US dollar however peaked today at 2.34.

This was slightly lower than February’s rate when the Lari equalled 2.5 GEL for every US dollar.

Today 1 USD cost 2.34 GEL. In local exchange booths the rate was expected to be much higher.

This fluctuating exchange rate has influenced the public and the currency they choose to borrow and save, said the NBG.

The larisation ratio, which measured the use of the domestic currency in the country’s economy, constituted 32.75 percent of all non-bank deposits last month, showed revealed data published by the Bank.

In June 2016 people in Georgia deposited 14.3 billion GEL into local banks but borrowed 16.4 billion GEL.

Meanwhile further changes to the monetary policy will depend on the inflation forecast, factors affecting inflation and the general state of the economy, said NBG.

The NBG predicted at the beginning of 2016 inflation will remain above its five percent target value but will start decreasing gradually before returning to its target of five percent in the second half of 2016.

Last month Georgia’s monthly inflation had dropped -0.9 percent following price changes to several major commodities in the consumer basket, said the National Statistics Office of Georgia (Geostat).

Meanwhile the Consumer Price Index change (annual inflation rate) posted a 1.1 percent increase year-on-year (y/y) and the Index rose 15.5 percent compared to 2010, said Geostat.

NBG Bank said tightening the country’s monetary policy caused the interest rate to rise and this affected people who had loans in US dollar and earned their income in Lari.

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 NBG MPC meeting will be held on September 7, 2016.