Central Bank Keeps Key Rate at 9%

The key refinancing rate will remain unchanged at 9%, the National Bank of Georgia (NBG) announced on January 29.

NBG started to tighten its monetary policy from September 2019, pushing the key refinancing rate from 6.5% to 9% till present. The bank then explained that the decision was driven by “inflationary pressure” from the GEL exchange rate depreciation, and noted that the Monetary Policy Committee “stands ready to further continue policy tightening until the pressures from exchange rate recede.”

The National Bank of Georgia noted that annual inflation rate stood at 7% in December. According to NBG, “along with one-off factors, the inflation overshooting was caused by the nominal exchange rate depreciation.”

The NBG said that along with the monetary policy tightening, nominal effective exchange rate slightly appreciated, reducing inflationary pressures; it, however, added that despite this appreciation, “the GEL nominal effective exchange rate remains undervalued.”

The central bank forecasts that other things equal the inflation will start declining from the beginning of 2020 and approach the target by the end of the year. This will be ensured by the monetary policy that will remain tightened until the medium-term inflation expectations are reduced to target 3%.

The 2020 state budget of Georgia sets inflation rate at 3.5%.

“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,” it said, adding that the next meeting of the Monetary Policy Committee will be held on March 18, 2020.

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