Georgia's central bank cut its benchmark refinancing rate by 25 basis points to 4.50 percent, its second rate cut this year, saying it had cut its inflation projection and now forecasts inflation to remain below the bank's target throughout this year and first approach it in the second half of 2014.
The National Bank of Georgia, which started its monetary easing cycle in July 2011, said economic activity weakened at the end of last year, and lower demand is pushing the price level downwards.
A slowdown in the growth of imports in January and February is another indication of a slowdown in domestic demand, the bank said.
Georgia's consumer price inflation continued to drop in February as deflation maintained its grip on Georgia. Inflation was minus 2.12 percent in February, slightly up from January's minus 1.6 percent.
Since February 2012, the inflation rate has only been positive in two months, October and July, with inflation rates of 0.56 percent and 0.1 percent, respectively.
The central bank said its forecasts for inflation had dropped since the last meeting of its monetary policy committee, which targets inflation of 6 percent.
Georgia's central bank cut rates by 150 basis points in 2012 and has now cut by 75 basis points this year following a 50 basis point reduction in February.
The central bank said the economy expanded by an annual 2.8 percent in the fourth quarter and credit activity remains weak due to low demand for loans, leading to a slowdown in demand.
"Low credit activity also weakens the interest rate channel of monetary transmission," the central bank said.