Wednesday, January 30, 2019

Georgia cuts rate 25 bps and sees further easing in 2019

     Georgia's central bank lowered its benchmark refinancing rate by 25 basis points to 6.75 percent on continued weak inflationary pressures and said it expects to reduce the rate further this year.
     The National Bank of Georgia (NBG), which has maintained its rate since embarking on an easing cycle in July 2018, also repeated last month's guidance that the pace of further easing of monetary policy was tied to the output gap and external risks.
    Today's rate cut comes after the central bank's president, Koba Gvenetadze, last week told Reuters NBG would lower its rate to between 5 and 6 percent over the next two years.
     In today's statement, the central bank external risks to inflation had weakened since the monetary policy committee's last meeting in December and it expected inflation to move around its target in the medium term after remaining close to the 3.0 percent target in 2018.
      Georgia's inflation rate fell to a 25-month low of 1.5 percent in December from 1.9 percent in November.
     NBG added positive trends in the foreign sector had continued toward the end of last year, with the export of goods up by 23 percent last year and revenue from tourism up by 18 percent in the year.
     However, beginning with the second half of the year, domestic demand had slowed.
     Georgia's gross domestic product grew by 3.7 percent year-on-year in the third quarter of last year,  down from 5.6 percent in the second and 5.2 percent in the first quarter.
     The International Monetary Fund (IMF) expects Georgia's economy to grow 4.6 percent in 2019 after 5 percent last year with inflation averaging 3.1 percent this year after 2.8 percent in 2018.
      In December the IMF said the country's economic performance was strong but downside risks had risen.
      It added the central bank's inflation-targeting framework, combined with a floating exchange rate regime, was serving the country well and the monetary policy stance was appropriate.
      Georgia's lari, which fell sharply from October to November last year, has been relatively stable this year and was trading at 2.65 to the U.S. dollar today, up 1.1 percent since the start of 2019.


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