Georgia’s Central Bank Keeps Key Rate at 9%

On March 18, the National Bank of Georgia (NBG) announced its decision to hold the benchmark refinancing rate unchanged at 9%, citing “high level of uncertainty” in the global economy.

The NBG has started to tighten its monetary policy since September 2019, pushing the key refinancing rate from 6.5% to 9% presently. The bank based its decision on fears of  “inflationary pressure” from the GEL exchange rate depreciation, and noted that the Monetary Policy Committee “stood ready to further continue policy tightening until the pressures from exchange rate receded.”

The National Bank of Georgia noted that the annual inflation rate stood at 6.4% in January-February. According to the NBG, “inflation was expected to decline over the rest of the year and approach the target gradually, while the decline in inflation was ensured by the tight monetary policy stance.”

However, amid the coronavirus pandemic and the sharp drop in oil prices on the international commodity markets, economic uncertainty significantly increased globally. It is expected that economic growth rates will slow down in our trading partners as well as in Georgia, but at this stage it is impossible to make accurate estimates based on the available data,” the NBG announced.

Georgia’s Central Bank noted that “if the pressure on inflation from the nominal effective exchange rate turned out to be stronger,” it would consider adopting tight monetary policy. On the other hand, if the decline in external and domestic demand increases and, despite the depreciation of the currency, exerts downward pressure on inflation, the NBG is expected ease its monetary policy stance.

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This post is also available in: ქართული (Georgian) Русский (Russian)

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