President of National Bank of Georgia: increase in refinancing rate expected

A further increase in the refinancing rate is expected, announced the President of the National Bank of Georgia Koba Gvenetadze today at a session of the Budget and Finance Committee of Parliament.

Gvenetadze spoke about the macroeconomic environment of Georgia, inflation and economic forecasts.

Increases of the refinancing rate are expected until the forecast will show that the pressure of the nominal exchange rate on the inflation has been neutralised, then [refinancing rate] will decrease gradually and return to the neutral level which is estimated at six per cent,” said Gvenetadze.

Koba Gvenetadze noted that for 2020-2022 the target inflation is defined at the level of three per cent.

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 the refinancing rate to combat a future surge in the general price level.

In October 2019 the annual rate of inflation amounted to 6.9 per cent, which is more than the target inflation of three per cent.

The National Bank of Georgia (NBG) increased the refinancing rate by 0.5 percentage points to 7.5 per cent on September 25, and again by one percentage point to 8.5 per cent on October 23.