Central Bank Cuts Key Rate to 7.5%

The National Bank of Georgia (NBG) cut its key refinancing rate by 50 basis points to 7.5% on Wednesday, saying that there is a need to gradually ease monetary policy.

NBG’s monetary policy committee said after its meeting that it plans to gradually reduce key rate to “neutral” level of 5-6% in a mid-term period.

NBG started tightening of monetary policy from February 2015 with the key rate gradually increasing in a course of last year from 4% in the beginning of 2015 to 8% by the end of last year. The key rate was remaining unchanged at 8% in the first three months of this year.

NBG’s monetary policy committee said that tightening of monetary policy in course of 2015 contributed to lower inflation expectations and added that annual inflation is expected to remain below central bank’s target level of 5% in coming months, reaching the target level by the end of the year.

Annual inflation rate stood at 4.1% in March after 5.6% in the previous month.

Also on April 27, in an attempt to boost funds attracted in national currency, the central bank said, it decided to decrease commercial banks’ minimum reserve requirements for local currency holdings from 10 to 7%. But it increased minimum reserve requirements for foreign currency from 15 to 20%.

Central bank’s monetary policy committee will hold its next meeting on June 15.