Georgia’s central bank lowered its key interest rate for the third time this year as it continues what it described as a “gradual exit from the tightened policy stance at a slower pace,” adding inflation is expected to continue to decline during the rest of this year due to weak demand as the economy shrinks.
The National Bank of Georgia (NBG) issued the following statement:
“The Monetary Policy Committee (MPC) of the National Bank of Georgia (NBG) met on August 5, 2020, and decided to cut the refinancing rate by 0.25 percentage points to 8.0 percent.
As expected, inflation continued to decline in July, reaching 5.7 percent, while prices fell by 0.5 percent on a monthly basis. According to the NBG forecasts, other things equal, inflation will continue to decline over the rest of the year, fall below the target level in the first half of 2021 and then approach it from below. The decline in inflation will be driven by the weak aggregate demand. In particular, according to the revised forecast of the NBG, the economy is expected to shrink by 5 percent in 2020, excerting the downward preassure on inflation forecast. The revision of economic growth forecast followed a larger expected decline in global economic activity and external demand than was evident in the early stages of the pandemic. At the same time, the risks of inflation expectations should also be taken into account as inflation rate remains above the target over a protracted period. Hence, the Monetary Policy Committee continues gradual exit from the tightened policy stance at a slower pace, reducing the rate by 0.25 percentage points.
Free Reports:
Preliminary indicators point to a decline in aggregate demand. According to preliminary data, economic activity fell by 7.7 percent year-on-year in June. However, compared to April-May, there are signs of recovery in domestic demand, which is associated with fiscal stimulus and better-than-expected dynamics of credit activity and remittances. According to preliminary data, revenues from international travelers in June fell by 97 percent year-on-year. Meanwhile, the demand for exports also remained weak, with an annual decline of 14 percent in June. With the reduction of export proceeds, imports also fell by 22 percent year-on-year.
The 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 on September 16, 2020.”
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