05.Nov .2019 22:01

"The Vicious Circle" - Business Association's Assessment on Rising Inflation and NBG’s Steps

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Levan Vepkhvadze, executive director of the Georgian Business Association, notes that the inflation rate in the end of 2019 won't be satisfactory. Vepkhvadze told this to TV-program Business Course while talking about the newly released data by Geostat. According to the report, annual inflation has risen to 6.9% in October 2019.

"The main causing factor of the inflation is that we are still a small, dollarized economy, which relies on the imported goods and consequently, the depriciation of GEL is reflected on the prices. Obviously, this is not fully reflected yet, it is a process. Unfortunately, we will not have better inflation data until the end of the year ", Vepkhvadze said.

As for the NBG’s role linked to the dealing with the inflation, Levan Vepkhvadze said that he had remarks with the NBG in the past. However, now he sees some steps that give him a sense of stability.

"I had complaints some time ago, as there was no timely interference in those processes concerning to GEL rate change. There was no immediate impact on expectations and speculative sentiments, they needed timely interventions. But today we see more active communication between the government and the central bank and those measures give us a sense of stability.

However, the monetary policy decisions that raises the rates, hit the economy i.e. unfortunately, we move on the vicious circle. This means that the solution for inflation is increased interest rates. But these rates hit the consumption and business, that create added value in the country, so if consumption falls, it will have a negative impact on business. " - Levan Vepkhvadze noted.

The International Monetary Fund predicts that inflation will reach 7.2% by the end of the year.