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National Bank Raises Monetary Policy Rate by 25 Base Point to 6.75%

On January 25 Monetary Policy Committee of National Bank of Georgia (NBG) increased refinancing rate by 25 base point to 6.75%.

The decision is based on macroeconomic forecasts, under which in 2017 inflation will be mainly above the target indicator. However, in 2018 inflation will decline and will be maintained below the target indicator.

Under the forecast, temporary growth in inflation is mainly preconditioned by one-time factor, especially by growth in excise on consumer prices and influence of exchange rate volatility. At the same time, exchange rate dynamics was mainly preconditioned by Turkish LIRA depreciation and USD global strengthening since the second half of 2016, because the mentioned factors have intensified inflation expectations. Based on the existing forecasts, NBG finds its reasonable to gradually raise monetary policy rate to 7% with the aim to curb the mentioned expectations. At this stage, the policy rate was raised by 25 base point. After completion of one-tine effects, inflation will decline and in midterm period it will move closer to target indicator.

In all other equal conditions, along with completion of factors affecting inflation, in midterm period monetary policy rate will return to its neutral level stage by stage.

At this stage, inflation will be maintained at low level because of weak joint demand, reduced imports inflation and completion of base effect. In December 2016 annual inflation marked 1.8%.

Positive tendencies were outlined in terms of exports. In fourth quarter of 2016, as a result of improved external demand, annual declination in exports of registered good was replaced by upturn. However, imports also increased and this factor deteriorated net exports.

Revenues from tourism sector is also growing. Moreover, money transfers from abroad have also increased compared to 2015.

NBG will supervise over ongoing economic developments and finance markets and will apply all leverages to maintain consumer prices.

Next meeting of monetary policy committee will be held on March 7, 2017.