Increase in refinancing rate by Georgian National Bank to lead to more expensive loans
Baku, Azerbaijan, September 26
By Tamilla Mammadova – Trend:
Raising the refinancing rate by National Bank of Georgia will increase the cost of loans in the country, Trend reports referring to Georgian non-governmental organization Society and Banks.
In connection with the depreciation of the lari, the National Bank has tightened its monetary policy for the second time since the beginning of September. This time, the refinancing rate was increased to 7.5 percent.
For six months of 2019, the lari depreciated by 10.7 percent against the dollar. If on March 25 the official rate of the lari declared by the National Bank to the dollar was 2.6822 GEL / $1, by September 26 it had already reached 2.9694 GEL / $1.
On September 25, the Monetary Policy Committee of the National Bank of Georgia at an extraordinary meeting decided to increase the refinancing rate by 0.5 percentage points, to 7.5 percent.
According to the Society and Banks, the National Bank could have decided to tighten its monetary policy at a meeting on July 24, which would have reduced pressure on exchange rate inflation and there would be no need for an extraordinary meeting," the statement said.
According to the organization’s information, as of September 1, Georgia in general issued 102,700 loans totaling more than 5.3 billion lari (about $1.8 billion). The number of loans issued from August 1 to September 1 increased by 4,400.
"The decision of the National Bank to tighten monetary policy is likely to cause to bring inflation closer to the target, but it should be noted that an increase in the refinancing rate will reduce economic activity and slow down economic growth, as well as increase theinterest rate on loans issued in lari," the report said.
The National Bank and the Georgian government attribute the depreciation of the lari to an “external shock” due to the unjustified expectation of an increase in the number of tourists.
The refinancing rate is the amount of interest on an annualized basis that credit organizations pay to the National Bank for loans granted to them. The rate is the main instrument of the monetary policy of the National Bank and is considered a guideline for market rates in the financial sector.