By CentralBankNews.info
Georgia’s central bank kept its key refinancing rate at 7.25 percent but said it would consider a gradual easing of its “moderately tight” monetary policy stance “once the factors pushing inflation upwards are sufficiently weakened.”‘
The National Bank of Georgia (NBG), which has maintained its rate after raising it by 25 basis points in December 2017 after a fall in the lari’s exchange rate, said relatively higher volatility seen on international financial markets had increased the risk of a stronger transmission of inflationary pressures from its main trading partners.
The central bank acknowledged it was keeping a tight policy despite the fact that demand remains below the country’s potential level of output, putting downward pressure on inflation.
The NBG’s rate hike on Dec. 13 helped reverse a 9 percent fall in the lari from late October to mid-November, with the lari rising13.4 percent against the U.S. dollar between Dec. 1 and April 5.
Since then the lari has weakened and was trading at 2.46 today, down 2.8 percent since April 5. However, the lari still remains 5.3 percent higher than at the start of 2018.
Georgia’s inflation rate declined at the start of this year as the impact of last year’s hike in tobacco and fuel taxes dissipates and the central bank confirmed that it expects inflation to remain close to its target level of 3.0 percent this year.
In March headline inflation rose slightly to 2.8 percent in March from 2.7 percent in February.
Georgia’s economy recovered in 2017 and growth this year is expected to remain strong, with the government’s reform program supporting investment and productivity.
The central bank said preliminary estimates show growth of 5.2 percent in the first quarter of this year and 5.6 percent in March, with the positive external sector helping boost exports and tourism.
However, NBG cautioned that imports were growing stronger than last year, a fact that was also raised by the International Monetary Fund (IMF) earlier this month.
On April 16 the IMF said Georgia’s current account deficit was expected to widen slightly due to higher oil prices and public investment but over the medium term sustained implementation of its economic reform program should support higher and more inclusive growth.
In 2017 Georgia’s current account deficit narrowed to 8.7 percent of Gross Domestic Product due to “rapid growth in exports, tourism, remittances,” the IMF said.
The IMF also said it expected fiscal prudence to continue and the deficit to decline in the medium term despite scaling-up public investment and the deficit should narrow to 2.8 percent this year from 2.9 percent in 2017.
The IMF also said NBG’s monetary policy stance was “adequate and appropriately focuses on price stability,” adding that inflation this year is seen in line with target and the flexible exchange rate remains critical to protect the economy against external shocks.
The National Bank of Georgia issued the following statement: