C.Bank Increases Key Rate to 5%

Georgian National Bank increased its key policy rate by 50 basis points to 5% on Wednesday and projected gradual increase of the rate to 5.5% by the end of the year.

Annual inflation stood at 2.5% in April, below central bank’s target level 5%.

Central bank’s monetary policy committee said that depreciation of Georgian currency lari (GEL) prompted increase of inflation expectations, which “can be reflected in the risks of the inflation deviating from its target level in the medium term.”

“Given the aforementioned the monetary policy committee considers necessary to increase the monetary policy rate gradually to 5.5 percent by the end of the year,” it said.

GEL lost 32.5% of its value against U.S. dollar and up to 19% against Euro since early November, when lari started depreciation.

The central bank said that economic problems in Georgia’s main trading partners continue to have negative effect on Georgia with declining exports, remittances and inflow of tourists.
 
It said that depreciation of lari already started to have effect on the import demand, fostering domestic demand. It also said that economic growth in the first quarter was higher than expected, but loan growth has significantly slowed down in April.