BAKU, Azerbaijan, June 24
By Tamilla Mammadova - Trend:
The Monetary Policy Committee (MPC) of National Bank of Georgia (NBG) decided to cut the refinancing rate by 0.25 percentage points to 8.25 percent during the meeting on June 24, Trend reports referring to NBG.
As reported, in May, annual inflation stood at 6.5 percent. According to the NBG forecasts, inflation will continue to gradually decline over the rest of the year and will reach the target level in the first half of 2021. The inflation dynamics will be determined by the interaction of both demand and supply side factors.
"On the one hand, the COVID-19 prevention measures led to an increase in the cost of supply of some goods and services. However, the increase in costs has only a short-term effect on the inflation rate. On the other hand, the impact of significantly weaker external and domestic demand on inflation will last longer, leading to a reduction in inflation forecasts. At the same time, it should be noted that above target inflation in long-term creates the risks of rising inflation expectations," NBG said.
Taking these factors into account, the Monetary Policy Committee deemed it appropriate to continue the gradual exit from the tightened monetary policy stance and reduced the rate by 0.25 percentage points.
According to the bank, despite the decline, monetary policy remains tight, ensuring a return of inflation to its target level in the medium term. The pace of further policy normalization will depend on how quickly inflation expectations recede.
"Preliminary indicators produce mixed signals regarding the expected reduction in aggregate demand. According to current estimates, economic activity in April fell by 16.6 percent annually. At the same time, in May, compared to the previous month, the volume of transactions with payment cards increased by 21 percent, although the annual growth rate is still negative. On the other hand, high annual growth of cash in circulation points to increased economic activity. At the same time, in the wake of the gradual lifting of restrictions, some improvement in credit activity has been observed," the bank said.
All these factors reveal that there is some uncertainty about the scale of the expected decline in aggregate demand. In addition, over the year, the aggregate demand is expected to be positively impacted by significant fiscal stimulus, including planned partial subsidies on interest charges for mortgage loans. The latter is, in fact, equivalent to additional easing of monetary policy stance, the report said.
NBG will continue to monitor the developments in the economy and financial markets and will use all instruments at its disposal in order to ensure the price stability.
The next meeting of the Monetary Policy Committee is scheduled to be held on August 5, 2020.
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