The Monetary Policy Committee (MPC) of the National Bank of Georgia (NBG) met on March 13 and decided to cut the refinancing rate by 25 basis points. Currently, the policy rate stands at 6.5 percent.
According to forecasts, since the beginning of the year, similarly to 2018, the inflation will remain within the target level of 3 percent. The annual inflation was equal to 2.3 percent in February. According to the current forecast, other things equal the inflation will fluctuate around the target rate in the medium term.
Along with the weakening of external risks the National Bank continued the gradual exit from moderately tightened monetary policy, which started in July 2018. According to the leading economic growth indicators the demand-side inflation pressure is still weak, as are the macroeconomic risks coming from the external sector.
Hence the MPC decided to cut the policy rate. Further easing of the moderately tight monetary policy will depend on how fast the output gap will close. The positive trends in the external sector have been maintained in the beginning of 2019. The goods export continues growing at a high rate, whereas the import growth is modest, resulting in the improvement of the current accound deficit. In the first months of the year the retail lending has somewhat slowed down, however the business lending is on the up.
In order to mitigate possible future financial stability risks, the Monetary Policy Committee decided to increase the minimum reserve requirements for funds attracted in foreign currency by 5 percentage points. The NBG will continue to monitor the developments in the economy and financial markets and will use all means and instruments at its disposal in order to ensure the price stability. The next meeting of the Monetary Policy Committee will be held on May 1, 2019.