Georgian National Bank reveals major factors causing inflation (Exclusive)

Finance Materials 5 September 2019 17:00 (UTC +04:00)

Baku, Azerbaijan, September 5

By Tamilla Mammadova – Trend:

Present depreciation of the nominal effective exchange rate in Georgia is amplifying inflation expectations, the National Bank of Georgia (NBG) told Trend.

As the bank noted, in June the sanctions of Russia in the tourism sector, negatively affected the economic expectations in Georgia.

The NBG said that despite positive macroeconomic dynamics in the internal and external sectors starting from the beginning of the year, during July and August, lari has depreciated.

"At the first stage, on August 1, 2019, the NBG intervened in the financial market and sold its reserves. The amount sold was $33 million ($40 million was offered at the auction). As the inflationary pressure driven by the exchange rate depreciation persisted, the Monetary Policy Committee decided to tighten the policy and increased the policy rate by 0.5 percentage points", said the bank.

Moreover, the Committee stands ready to further continue policy tightening until the pressures from exchange rate recedes.

"The main objective of the National Bank of Georgia is to maintain price stability. Consequently the decisions of the Monetary Policy Committee are directed towards reducing inflationary pressure. In August, annual inflation rate stood at 4.9 percent", said the bank.

"Overshooting the target was caused by several factors. One-off factors, such as increase in excise tax on cigarettes, remain one of the major contributors to high inflation. Moreover, the pass through of the exchange rate depreciation to inflation increased in recent periods," said the bank.

According the bank, the Monetary Policy Committee decided to increase the policy rate by 0.5 percentage points from 6.5 percent to 7 percent.