The National Bank of Georgia (NBG) has increased the refinancing rate by 0.5 percentage points to 7 per cent.
The depreciation of the exchange rate has boosted inflationary expectations, the NBG says, therefore the refinancing rate has been increased, which will continue until the pressure of the exchange rate on inflation decreases.
In August 2019, annual inflation amounted to 4.9 per cent in Georgia, which is more than the inflation target of three per cent set by the National Bank of Georgia for 2019-2021.
By steering interest rates, the NBG influences the level of inflation. Specifically, the change in short-term rates is transmitted to long-term rates, which, ultimately, affects the interest rates on loans.
When projected inflation is above the target inflation rate, the NBG raises refinancing rate to combat a future surge in the general price level.
According to the forecast of the NBG, inflation will remain above the target level this year but will start to decline from March next year, and stay close to the target in the medium-term, the NBG said.
The next meeting of the Monetary Policy Committee is scheduled for October 23, 2019.