Georgia’s central bank lived up to its warning from July and raised its benchmark rate to curb inflationary pressures from a depreciation of its lari currency and said it was “ready to continue tightening policy until the pressure on the exchange rate weakens.”
The National Bank of Georgia (NBG) raised its refinancing rate by 50 basis points to 7.0 percent, saying the impact of the exchange rate depreciation on inflation had increased recently and this was now exacerbating inflationary expectations.
The rate hike by NBG comes as inflation has begun to accelerate following a steady fall in the lari since February and after the central bank cut its rate twice this year in January and March by a total of 50 basis points.
Georgia’s inflation rate rose to 4.9 percent in July from 4.6 percent in June and only 2.2 percent in January, boosted by higher taxes on cigarettes. Core inflation, which excludes food, energy and tobacco, is still low at 2.4 percent, indicating weakening demand-side pressures, NBG said.
The lari has been falling since mid-February and was trading at 2.96 to the U.S. dollar today, down 9.5 percent since the start of this year.
The central bank said it would “use all available means to ensure price stability” and if necessary its monetary policy committee would consider meeting at an extraordinary session. Its next meeting is scheduled for Oct. 23.
The National Bank of Georgia issued the following statement:
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