National Bank of Georgia tightens monetary policy rate

Georgia Materials 8 December 2021 13:21 (UTC +04:00)
National Bank of Georgia tightens monetary policy rate

BAKU, Azerbaijan, Dec. 8

By Maryana Akhmedova – Trend:

The Monetary Policy Committee of the National Bank of Georgia decided to increase the monetary policy rate by 0.5 percentage points to 10.5 percent on December 8, 2021, Trend reports via the press service of the Bank.

“The situation caused by the COVID-19 pandemic has created many problems in the world economy, among which is high inflation environment. Therefore, the increased inflation for Georgia remains one of the main challenges,” the statement said.

The annual inflation rate decreased slightly to 12.5 percent in November 2021, however, although this is mainly due to temporary factors independent of monetary policy, it remains high.

According to preliminary estimates of the National Bank of Georgia, the contribution of external factors to the annual inflation in November 2021 is about 9 percentage points.

“One of these factors is the increase in prices for consumer goods on international commodity markets, which is transferred to the local market under the influence of imported raw materials and products,” the Bank noted.

The statistical methodological impact of the utility subsidy on current inflation will have a temporary additional contribution to the annual inflation rate in December 2021 and January-February 2022.

As for the aggregate demand, it has recovered significantly from the second quarter of 2021, due to several factors. One of them is fiscal stimulus: although the budget deficit has been decreasing annually, its level is still high, which supports a high level of domestic demand, the Bank added.

Moreover, stronger than expected pent-up demand in the second quarter of 2021 accelerated the recovery of economic activity. The recent increase in domestic demand has also been supported by accelerated credit growth. High domestic demand is a positive stimulus for the current economic activity, but at the same time, it hinders the achievement of the goal of reducing inflation.

The increase in the difference between interest rates on loans in Georgian lari and foreign currency due to the tightening of monetary policy contributes to the recent growth of lending in foreign currency, which is a source of currency risks in the economy.

“Taking into account these factors, the Committee decided to further tighten monetary policy and increased the policy rate to 10.5 percent. Inflation is expected to increase temporarily in the coming months due to the above-mentioned base effect of the utility bill subsidy, although it will start declining from spring,” the statement said.

The National Bank of Georgia monitors the current economic processes and financial markets on a continuous basis and will use all the tools at its disposal to ensure price stability, the statement concluded.


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