C.Bank Increases Key Rate to 6%

The National Bank of Georgia raised its key refinancing rate by 50 basis points to 6% on August 12, citing “increase in the inflation expectations”.

Georgia’s annual inflation accelerated to 4.9% in July from 4.5% a month earlier, reaching the highest rate in almost four years. July’s annual inflation was just under central bank’s 5% target.

Annual inflation “may slightly exceed target level” by the end of this year, the central bank’s monetary policy committee said after a meeting on August 12. It said that external and internal demand remains weak.

It also reiterated its earlier forecast of further tightening monetary policy and said that refinancing rate is expected to be within 6.5% by the end of this year “if no additional shocks emerge”.

The central bank said that among internal factors, which affect negatively on expectations along with external factors, is “attempts to discredit National Bank’s policy.”

The central bank and its chief Giorgi Kadagidze, whose seven-year term in office will expire in February 2016, have been a frequent target of attacks from GD ruling coalition after the depreciation of national currency, lari.

Kadagidze told journalists on August 12, that “leveling completely groundless and comic allegations against the National Bank by government and Georgian Dream members has already become usual.”

“This is very bad and harmful for our economy,” he said.

As of August 12, lari lost 31.6% of its value against U.S. dollar since November, 2014, mostly due to the strengthening of the dollar and the decline of external earnings in the form of reduced exports and remittances.

The central bank started tightening monetary policy earlier this year, increasing refinancing rate from 4% to 4.5% in February and further raising it to 5% in May and to 5.5% in July.

Central bank’s Monetary Policy Committee will hold its next meeting on September 23.