Georgia's National Bank maintains refinancing rate at 10%

TBILISI. Oct 25 (Interfax) - The Monetary Policy Committee of the National Bank of Georgia on Wednesday decided to maintain its refinancing rate at 10% per annum, the National Bank said in a statement.

The 10% rate has been in effect since mid-September, when it was lowered from 10.25%.

The National Bank said that inflation in Georgia remains low and is still below the target level of 3%. In September this year, inflation was 0.7%, and core inflation was 2.5%. Low inflation, on the one hand, is due to weakening pressure on prices from the pandemic and the conflict in Ukraine. On the other hand, the slowdown in price growth for locally produced goods (5.3% in September) also contributes to the reduction in inflation because of tight monetary policy. According to the current forecast, all other things being equal, inflation in Georgia will remain below the target level at the end of 2023, and will stabilize at around 3% in 2024.

In parallel, the acute geopolitical situation is creating a globally unstable environment and creating additional uncertainty around the inflation forecast. Adding to the turmoil that has already occurred is the situation in the Middle East. Recently, trends in the fuel market have also deteriorated somewhat, both in terms of prices and supply volatility. Along with these risks, the National Bank believes that trends in the Georgian economy also deserve attention. This year in particular, demand remains strong, with economic growth expected at 6%. The rate of loan growth has relatively accelerated in recent months. The main source of growth in lending activity is the increase in the volume of business loans, mainly in foreign currency. It is noteworthy that high aggregate demand caused by the acceleration of credit activity usually carries additional inflation risk, the National Bank said.

Given the high uncertainty and these risks, the National Bank of Georgia remains focused on maintaining low inflation and pursuing a tight monetary policy. Taking into account inflation trends and forecasts, other things being equal, the regulator will continue to reduce the discount rate at a slow pace. The combination of strict monetary policy and recent macroprudential measures taken on foreign exchange is helping to maintain moderate lending levels, which significantly reduces inflation risks, it said.

The next scheduled meeting of the National Bank's monetary policy committee will take place on December 20.