The Monetary Policy Committee (MPC) of the National Bank of Georgia (NBG) met on January 29, 2020, and decided to keep the refinancing rate unchanged at 9.0 percent.
In December, annual inflation equalled 7.0 percent. In addition to the one-off factors from early 2019, the nominal effective exchange rate depreciation had a significant impact on inflation. In response, to neutralize inflationary pressures stemming from the exchange rate depreciation, from September 2019, the NBG began tightening its monetary policy stance. In December, the nominal effective exchange rate strengthened slightly, which reduced the pressure on inflation.
However, the nominal effective exchange rate remains undervalued. In recent periods, economic growth accelerated and lending is robust. If these dynamics create additional inflationary pressure, the tight monetary policy stance may be maintained for more extended period.
According to the NBG forecast, other things being equal, the inflation will start to decline from the beginning of the year and approach the target by the end of the year. This will be ensured by the monetary policy which will remain tight until the medium term inflation expectations decline to three percent target.
Meanwhile, the exports and remittances revealed moderate growth, and, despite the decline in summer, the annual change in tourism revenues became positive since October 2019. It is noteworthy that in 2019, similar to 2018, the current account improved significantly.
The NBG will continue to monitor the developments in the economy and financial markets and will use all means and instruments at its disposal to ensure price stability.
The next meeting of the Monetary Policy Committee is scheduled on March 18, 2020.
