Georgia’s central bank raised its benchmark refinancing rate by another 50 basis points to 9.0 percent, living up to its pledge from October to continue tightening its monetary policy stance until the pressure from a low exchange rate has receded, helping boost the lari’s exchange rate further.
The National Bank of Georgia (NBG) has now raised its rate by 250 basis points since September after two hikes that month and another hike in October and today.
These rate increases came after two rate cuts in January and March of a total of 50 points so the net increase in the central bank’s benchmark rate this year is 200 points.
Georgia’s inflation rate inched higher to a new 2019-high of 7.0 percent in November from 6.9 percent in October but NBG said it expects inflation to start declining from March next year and approach its target of 3.0 percent by the end of 2020.
“Along with one-off factors, the inflation overshooting was caused by the nominal exchange rate depreciation,” the central bank said, adding it had started to tighten policy in September to neutralize inflationary pressure from the depreciation.
“During the appreciation observed during the last few days, the GEL nominal effective exchange rate remains undervalued, pinning inflation exceptions above the target level,” NBG said, adding future policy decisions will depend on the speed of neutralization of inflationary pressures stemming from the exchange rate depreciation.
The central bank’s rate hikes have helped turn around the lari’s trend after it fell steadily through September. It then stabilized and has been rising since hitting a 2019 low of 2.98 to the U.S. dollar on Nov. 20.
Today the lari rose further and was trading at 2.87 to the dollar, up 3.8 percent since Nov. 20 but still down 6.6 percent since the start of the year.
The National Bank of Georgia issued the following statement:
“The Monetary Policy Committee (MPC) of the National Bank of Georgia (NBG) met on December 11, 2019, and decided to raise the refinancing rate by 0.5 percentage points to 9.0 percent.
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