Wednesday, March 26, 2014

Georgia holds rate on geopolitical risk, but sees tightening

   Georgia's central bank held its policy rate steady at 4.0 percent, saying it still believes there is a need for a gradual withdrawal of monetary stimulus but the policy rate was maintained due to the increased geopolitical risks and uncertainty.
    The National Bank of Georgia, which raised its rate by 25 basis points in February after cutting by 150 basis points in 2013, said it still expects inflation to be between 5 and 6 percent in the second half of this year with aggregate demand expected to recover further.
    Georgia's inflation rate rose to 3.46 percent in February, the fifth consecutive month of accelerating inflation after deflation in most of 2012 and 2013. The central bank targets inflation of 6.0 percent and said last month that there was no need to maintain an easy policy stance as economic growth was improving and it should continue to improve in the first half of this year.
    The central bank's forecast is based on a balance of risks but it cautioned that the recent escalation of geopolitical factors and economic uncertainty pose a threat.
    "In particular, the deterioration in the economic environment could affect the economy through several channels, including reduced demand for exports, investors' mood and lower remittances," the bank said.

    Georgia, which gained independence from the Soviet Union in 1991, is located in the Caucasus region, bordering the Black Sea on the west, Turkey on the south and Russia on the north. The Crimean peninsula, which has been annexed by Russia from Ukraine, also lies is in the Black Sea.
    Georgia's Gross Domestic Product grew by an annual 7.1 percent in the fourth quarter of 2013 and the bank said annual growth in January was estimated at 7.8 percent due to growing exports.
    Exports from Georgia eased to US$ 216.15 million in February from $223.61 in January.
    Georgia's lari currency depreciated by 4.6 percent against the U.S. dollar last year, raising the inflation rate by an estimated 1 percentage point. It continued to decline until late January when it started to rise. Earlier today it was trading at 1.74 to the U.S. dollar, steady since the end of 2013.


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