7 May 2015 11:48

National Bank of Georgia raises refinancing rate to 5% from 4.5%

TBILISI. May 7 (Interfax) - The Monetary Policy Committee (MPC) of the National Bank of Georgia (NBG) has decided to increase the refinancing rate by 50 basis points to 5%, the bank said in a statement.

Due to the Georgian lari's depreciation, the inflation expectations have risen, which can be reflected in the risks of the inflation deviating from its target level in the medium term, the bank said. "Given the aforementioned the Monetary Policy Committee considers necessary to increase the monetary policy rate gradually to 5.5% by the end of the year," it said.

Annual inflation in April was 2.5%. "The impact on the inflation of the increase in intermediate costs related to the service of foreign currency-denominated debts (due to the lari's depreciation) was partially balanced by the decrease in fuel prices. The deterioration in economic trends in our main trade partners continues to affect negatively Georgian economy. Goods export, remittances and tourism inflows have all decreased," the bank said.

"However the recent changes in the exchange rate have already started to affect the import demand, which in turn ensures the adjustment of external imbalance and fosters domestic demand. According to preliminary information the economic activity in the first quarter was higher than forecast. Despite that, the loan growth has significantly slowed down in April. According to the current forecast, the inflation will grow at a moderate speed and will reach its 5% target value by the end of 2015."

"The NBG will continue to monitor the developments in the economy and financial markets and will use all means and instruments at its disposal to ensure price stability. The dynamics of further changes in monetary policy will depend on the dynamics of expected inflation, tendencies in economic growth, global and regional economic environment," the bank said.

The NBG's target value for inflation is 5% per year in 2015-2016. The government is forecasting 4% inflation this year.