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National Bank of Georgia lowers rate of monetary policy

Business Materials 25 April 2012 22:17 (UTC +04:00)
Monetary Policy Committee of the National Bank of Georgia decided to reduce the refinancing rate by 25 basis points - to 6.25 percent on Wednesday.
National Bank of Georgia lowers rate of monetary policy

Georgia, Tbilisi, April 26 /Trend N.Kirtzkhalia/

Monetary Policy Committee of the National Bank of Georgia decided to reduce the refinancing rate by 25 basis points - to 6.25 percent on Wednesday.

Indicators of economic activity in the first quarter of the year pointed to strong growth, the National Bank told Trend. Despite the high growth there is no deviation from the potential level, which indicates the absence of inflationary pressures from the demand side.

The annual change in consumer prices was -2.2 percent in March. Negative inflation is mainly due to base effect.

The inflation forecast has not changed after the last committee meeting. Current forecasts in conditions of unchanged policy during the year indicate a low inflation and targeted inflation growth at the beginning of next year.

The banking system has been operated in conditions of excess liquidity since the beginning of the year. As a result, interest rates fell at short time interbank market and were drawn away from the policy rate, followed by a reduction of more long-term rates. This reduction in interest rates is actually equal to mitigate of the policy. Excess liquidity in the banking system has reduced in recent weeks, rising of interest rates in the interbank market, which would be undesirable in the present circumstances. Consequently, it is advisable to decrease the reduction of policy rate.

However, the accumulation of liquidity surpluses in the banking system has increased interest rate fluctuations in the interbank money market. The National Bank is considering is considering the possibility of selling government securities to sterilize excess of liquidity in the money market in order to reduce fluctuations in interest rates and increase the efficiency of monetary policy.

National Bank of Georgia will observe the current economic processes and financial markets and will take appropriate action in the future.

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