Wednesday, March 9, 2016

Georgia maintains rate, no further increases needed

    Georgia's central bank left its benchmark refinancing rate steady at 8.0 percent, saying it does not consider any further rate hikes necessary in light of the current forecasts.
    The National Bank of Georgia (NBG), which raised its rate by 400 basis points in 2015, added that inflation is expected to decline after the first quarter of this year and then remain around its target value of 5.0 percent.
     The central bank's statement on inflation varies only slightly to its previous statement from February when it said it expected inflation to slightly exceed its target in the beginning of this year before declining below 5 percent and remaining close to that level.
    Georgia's inflation rate was steady at 5.6 percent in February from January, with the main reasons for the high prices from a higher cost of debt services linked to the depreciation of the exchange rate and higher costs of imports, along with higher electricity tariffs and an increase in taxes on tobacco and alcohol.
    As these factors drop out of comparison in coming months, inflation should decline and any rise should be limited by weak demand and low global prices of food and oil.
    The central bank also said preliminary data showed economic growth of 0.8 percent in January.
    Georgia's economy expanded by an annual 2.9 percent in the fourth quarter of last year, up from 2.5 percent in the third quarter.

   
 
    The National Bank of Georgia issued the following statement:

"The Monetary Policy Committee (MPC) of the National Bank of Georgia (NBG) met on March 09, 2016 and decided to keep the refinancing rate unchanged at 8.0 percent.

The monetary policy decision is based on the macroeconomic forecast, according to which the tightening of the monetary policy will be reflected positively on the gradual decrease in inflation expectations. According to the forecast, inflation rate will decline after the first quarter of 2016, however it will remain around its target value. 

The annual growth in consumer prices equaled 5.6% in February. The main factors causing rise in inflation are still coming from the supply side, namely the increase in the debt service burden due to exchange rate depreciation and higher prices on imported goods. An important impact on the inflation came from the one-time factors, such as the increase in the electricity tariff and rise in the excise tax on tobacco and alcohol products. In the coming months, once the aforementioned factors will have been neutralized, the inflation is expected to decline. On the other hand the inflation is limited by the weak aggregate demand and decrease in the world prices of oil and food products. 

According to preliminary estimates the real growth in January 2016 was 0.8%. The main factor hindering the growth still is the external sector. The dire economic situation in the region negatively affects revenues from export of goods and services. The domestic demand is negatively affected by the decline in remittances and increase in the service burden of foreign currency denominated loans due to the depreciation of the GEL/USD exchange rate. 

Taking into account the existing forecasts the Monetary Policy Committee deemed that no additional policy tightening is necessary and kept the refinancing rate unchanged at 8.0%. 

The NBG will continue to monitor the developments in the economy and financial markets and will use all means and instruments at its disposal in order to ensure the price stability. 

The next meeting of the Monetary Policy Committee will be held on April 27, 2016."

    www.CentralBankNews.info

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