Georgia’s central bank: refinancing rate drops 25 basis points to 6.75%

The National Bank of Georgia (NBG) decreased its refinancing rate by 25 basis points following today’s advice from the Monetary Policy Committee (MPC).

With this change the bank’s refinancing rate now stands at 6.75 per cent.

NBG explains that changes to the monetary policy rate rely on the current and expected developments in the economy and financial markets. While formulating the monetary policy the MPC takes into account the projected inflation rate.

If projected inflation is above the target inflation rate, the NBG will tighten monetary policy by raising the policy rate to combat a future surge in the general price level… when the current forecasts of inflation are below the target, the NBG will pursue an expansionary monetary policy by lowering the refinancing rate”, explained the NBG.

A decrease in the monetary policy rate transmits to interest rates on loans, which in turn stimulates credits to the economy and encourages aggregate demand.

Over 2018, and in line with the forecasts, the inflation rate remained around its target level of 3%. In December, the annual inflation equaled 1.5%. NBG says inflation is expected to fluctuate near the target level.

In July 2018, the NBG started the gradual exit from the moderately tightened monetary policy. After the previous committee meeting, along with the reduction of macroeconomic risks coming from the external sector, the upward risks to the inflation forecast have also abated. Considering that the inflationary pressure from the aggregate demand remains weak, the committee deemed appropriate to cut the policy rate”, said NBG.

NBG says the monetary policy rate is expected to be reduced further over the course of the year. “The speed of normalisation will depend on how fast the output gap will close on one hand and how strongly the increased regional macroeconomic risks will be transmitted to Georgian economy – on the other”, the bank says.

As for the external sector, the annual growth rate of goods exports in 2018 equaled 23% whereas the tourism revenues grew by 18%. However in the second half of 2018, the growth of both domestic and external demand somewhat declined.

NBG will continue to monitor changes in the economy and financial markets and will use all the means and instruments at its disposal to ensure price stability.