Georgia's central bank decreases refinancing rate to 8.25%

The National Bank of Georgia (NBG) has cut the refinancing rate by 0.25 percentage points to 8.25 per cent in order to ensure price stability after monitoring developments in the economy and financial markets of Georgia.

The NBG said that in May annual inflation stood at 6.5 per cent and according to the NBG forecast, inflation will continue to gradually decline over the rest of the year and will reach the target level in the first half of 2021. 

Inflation dynamics will be determined by the interaction of both demand and supply side factors. On the one hand, the Covid-19 prevention measures led to an increase in the cost of supply of some goods and services. However, the increase in costs has only a short-term effect on inflation rate. On the other hand, the impact of significantly weaker external and domestic demand on inflation will last longer, leading to a reduction in inflation forecasts", says the NBG.

The NBG noted that above target inflation in the long-term creates the risk of rising inflation expectations. 

Taking these factors into account, the Monetary Policy Committee continues the gradual exit from the tightened monetary policy stance and reduced the rate by 0.25 percentage points. Despite the decline, monetary policy remains tight, ensuring a return of inflation to its target level in the medium term. The pace of further policy normalisation will depend on how quickly inflation expectations recede", says the NBG.

The next meeting of the Monetary Policy Committee is scheduled on August 5, 2020.