Central Bank Increases Key Rate to 7.5%

The National Bank of Georgia (NBG) raised its key refinancing rate by 50 basis points to 7.5% on November 4.

Central bank’s monetary policy committee said after a meeting on November 4 that the National Bank of Georgia “continues tightening of the monetary policy in response to increased inflationary expectations.”

Georgia’s annual inflation accelerated to 5.8% in October, above central bank’s 5% target.

“Inflation is expected to remain above central bank’s target level in the beginning of 2016, then it will start lowering and reaching 5% target level in the second half of 2016,” NBG’s monetary policy committee said in a statement.

It also said that depreciation of the Georgian currency, lari, contributed to inflationary pressures. Lari lost 36.7% of its value against dollar since last November and 27.3% since the start of this year.

The central bank sold USD 20 million on the foreign exchange market on October 27 to support lari. It was Georgian central bank’s seventh intervention this year, with total sales of USD 246.96 million.

NBG’s monetary policy committee said that lower imports, which have declined about 14% year-on-year in the first nine months of this year, eased pressure on lari and it is assumed that “the impact of the existing external shock on the exchange rate has been exhausted.”

The central bank started tightening of the monetary policy earlier this year, increasing refinancing rate from 4% to 4.5% in February and further raising it to 5% in May, to 5.5% in July, to 6% in August and to 7% in September.

Last time when key refinancing rate was at 7.5% was in September, 2011.

NBG’s monetary policy committee will hold its next meeting on December 16.