Wednesday, September 6, 2017

Georgia keeps rate steady, to ease to neutral mid-term

     Georgia's central bank kept its benchmark refinancing rate at 7.0 percent, saying it had decided to maintain the rate at the current stage but then gradually lower it to its neutral level in the medium term as inflation gets closer to the 3.0 percent level in early 2018 as temporary factors dissipate.
      The National Bank of Georgia (NBG), which has raised its rate twice this year by a total of 50 basis points, also said a deceleration in inflation in August to 5.7 percent from 6.0 percent in July was in line with its forecast.
      The central bank expects inflation to remain above its 2017 inflation target of 4.0 percent until the end of this year and then ease toward 3.0 percent, its 2018 target, in the beginning of next year.
      In its previous statement from July the NBG had expected inflation to decline in the second half of this year after it rose to a 2017-high of 7.1 percent in June due to higher costs of tobacco products and fuel, which pushed up inflation by 2.6 percentage points.
      Georgia's economy is continuing to improve, with the central bank estimating growth of 4.4 percent in the first seven months of this year, helped by an expansion of goods exports and tourism revenue along with rising remittances from abroad.
      At the same time, the growth in imports has been moderate, the bank added, and economic activity still remains below the country's potential so there are no inflation risks from demand.
       In the first quarter of this year Georgia's economy expanded by an annual rate of 5.1 percent, up from 2.8 percent in the previous quarter, driven by strong performance by construction, manufacturing and transport.
      The exchange rate of Georgia's lari has slipped in the last month after firming in the first quarter of this year but was still trading at 2.48 to the U.S. dollar today for an appreciation of 7.3 percent this year.

     The National Bank of Georgia issued the following statement:

"The Monetary Policy Committee (MPC) of the National Bank of Georgia (NBG) met on September 6, 2017 and decided to keep the refinancing rate unchanged at 7 percent.

The inflation dynamics is in accord with the existing forecast. The annual inflation in August has decreased to 5.7%. According to the forecast the inflation will remain above the target until the end of the year, whereas in the beginning of 2018, once the temporary factors will have petered out, the inflation will get close to the 3% level. The inflation expectations are stable as well. Hence, the Monetary Policy Committee has decided to keep the policy rate unchanged at the current stage. In case of no additional shocks the policy rate in the medium term is expected to gradually decrease to its neutral level.

The developments in the external demand are still positive. Both the goods exports and tourism revenues have been growing at a high rate, whereas the volume of remittances has been rising as well. At the same time the growth in imports has been moderate. According to the preliminary estimates the economic growth in the first seven months of 2017 was 4.4%. The economic activity is still below the potential and hence there are no inflationary risks from the demand side.

Notably, the larization of the financial sector has been increasing. The credit growth during the year has been mostly caused by the increase in GEL loans. At the same time in the recent months the GEL deposits have been growing as well. The increase in larization reduces the effect of currency fluctuations on the disposable income and fosters the macroeconomic stability in the medium term.

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 October 25, 2017."


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