OREANDA-NEWS. The Monetary Policy Committee (MPC) of the National Bank of Georgia (NBG) decided to reduce the refinancing rate by 25 basis points to 4.25 percent.

According to existing information, the inflation forecasts for the coming 4-6 quarters have gone further down since the previous meeting of the MPC. According to the current forecasts, it is expected that the headline CPI inflation will remain below its target level throughout this year and will approach it by the end of 2014.

Both headline and core inflation were low in April, with the headline annual inflation reaching -1.7%. Decrease in inflation was mainly caused by the decline in food prices. The base effect and the reduction in regulated prices were important as well.

The leading indicators of economic activity indicate it being weaker than expected in the first quarter of 2013, resulting in inflation falling below the expected level as well. Decline in aggregate demand pushes the price level downwards. Decrease of imports in the first quarter is another indication of slowdown in domestic demand.

The credit activity of commercial banks still remains weak due to the decrease in loan demand. Low credit activity also weakens the interest rate channel of the monetary transmission.  

Given that the inflation is predicted to remain below the target in the medium term, the National Bank of Georgia decided to continue monetary easing and to reduce the Monetary Policy Rate. 

The next meeting of the Monetary Policy Committee will be held on June 19, 2013.