Central Bank Increases Key Rate to 8.5%

The Monetary Policy Committee of the National Bank of Georgia (NBG) decided at its meeting on October 23 to raise its key refinancing rate by 1 percentage point to 8.5%.

The National Bank of Georgia started tightening its monetary policy from September 4, pushing the key refinancing rate first from 6.5% to 7% and later to 7.5%.

The bank then explained that the decision was driven by “inflationary pressure” from the GEL exchange rate depreciation, and noted that the Monetary Policy Committee “stands ready to further continue policy tightening until the pressures from exchange rate recede.”

Following today’s session the NBG said that in September annual inflation was above the target of 6.4% that, along with temporary factors, has been driven by the pressure of nominal effective exchange rate depreciation on inflation.

The NBG forecasts that inflation will be above the target this year and will be maintained close to the target in a mid-term period, starting to decrease from March 2020.

It also noted that the committee’s future decisions will depend on how quickly the pressure from exchange rate on inflation is removed.

“The NBG will continue to monitor the developments in the economy and financial markets and will use all means and instruments at its disposal to ensure the price stability,” the bank said in its statement, adding that the Monetary Policy Committee will hold its next meeting on December 11, 2019.

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