C.Bank Increases Key Rate to 5.5%

National Bank of Georgia increased its key policy rate by 50 basis points to 5.5% and predicted further “gradual” tightening of the monetary policy in the course of this year.

Central bank’s monetary policy committee said after a meeting on July 1 that its decision is based on “the macroeconomic forecast, which shows increase in the inflation expectations.”

Georgia’s annual inflation stood at 3.5% in May, after 2.5% in April.

“In line with the existing forecast the Monetary Policy Committee considers necessary to increase the monetary policy rate gradually to 6.5 percent by the end of the year,” the central bank said in a statement.

After its previous meeting on May 6, when key rate was increased from 4.5% to 5%, the Monetary Policy Committee was projecting gradual rise of key refinancing rate to 5.5% by the end of the year.

The central bank also said that domestic demand “remains weak”.

Georgia’s real GDP grew 2.1% year-on-year in May and the growth stood at 2.5% y/y in the first five months of this year.

“The recovery of the demand is hindered by the decline in loan growth in the recent months. The significant decrease in import also indicates the weakened demand,” the central bank said.

Georgia’s foreign trade turnover was at USD 3.9 billion in January-May, 2015, a 13% decline compared to the same period of last year.

Exports were down by 25% y/y to USD 884 million in the first five months of this year. Export to the EU also declined in the same period by 4% y/y to USD 242 million. January-May import stood at slightly over USD 3 billion, a 9% y/y decline.

Central bank’s Monetary Policy Committee will hold its next meeting on August 12.