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Georgia's National Bank makes statement on risk premiums

Finance Materials 31 October 2019 14:14 (UTC +04:00)

BAKU, Azerbaijan, October 31

By Tamilla Mammadova – Trend:

Despite high levels of uncertainty in the recent period, Georgia’s risk premium will not increase significantly, Trend reports via the report of the National Bank of Georgia (NBG).

If the inflationary pressure coming from the exchange rate will continue, the National Bank of Georgia is ready to continue tightening until inflation returns to its target level.

According to the baseline forecast, following the initial increase, policy rate will decline to its neutral level, which is currently estimated at 6 percent, in 2 years.

It should be stressed that the monetary policy rate forecast is not a commitment to future decisions made by the National Bank of Georgia. Rather, it is the expected trajectory of the policy rate assuming that all exogenous factors incorporated into the forecast materialize as expected.

Hence, if external or domestic factors evolve differently than is currently expected, this may influence macroeconomic variables and, consequently, will affect future decisions made by the National Bank of Georgia.

"Based on our estimation, the exchange rate is excessively undervalued. According to the forecast, other things equal, increased interest rate will support the appreciation of lari effective exchange rate," the NBG said.

Total spending will be relatively lower due to the higher interest rate, and as a result, the inflation will return to its target level in about three quarters.

"In any case, we will use all tools at our disposal to ensure the price stability and maintain the purchasing power of lari, which means that the rate of overall price increase will return to 3 percent," the bank said.

The NBG is the central bank of Georgia. Its status is defined by the Constitution of Georgia. The main objective of the National Bank is to ensure price stability.

The National Bank of Georgia implements monetary policy according to the main directions of the monetary and foreign exchange policy defined by the Parliament of Georgia. It holds, keeps and disposes the international foreign reserves of the country. Through its regulation and monetary tools, the National Bank of Georgia is responsible for ensuring the fulfillment of the basic functions and objectives assigned to it by law.

The National Bank exercises supervision over the financial sector for the purposes of facilitating financial stability and transparency of the financial system, as well as for protecting the rights of the sector’s consumers and investors.

Through the Financial Monitoring Service of Georgia, a legal entity of public law, the National Bank undertakes measures against illicit income legalization and the financing of terrorism. In addition, the NBG is the banker and fiscal agent of the government.

The NBG is responsible for performing and disseminating financial and external sector statistics in accordance with international standards and methodologies, and also for the effective and proper functioning of payment systems. The Bank has the sole right to issue money units as legal tender in the territory of Georgia, as well as the right to mint commemorative coins for numismatic and circulation purposes.

The National Bank of Georgia may provide banking services to foreign governments, foreign central banks and foreign monetary authorities, as well as international organizations. The National Bank participates in the activities of international organizations that pursue economic stability in the monetary sector through international cooperation.

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