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 4.0 percent.

Since the previous meeting of the Committee the inflation forecasts have not changed; inflation will remain low throughout this year and will approach its target value by the end of next year. In May the headline annual inflation reached -0.1%, whereas the monthly inflation was 0.7%. The price dynamics was affected mostly by the decrease in energy prices and seasonal increase in fruit and vegetable prices. The base effect and the one-time reduction in regulated prices were important as well.

The recent monetary easing by the National Bank, which was reflected both in the decrease of policy rate and widening the collateral base for the National Bank operations, has already somewhat affected long-term interest rates, which in turn promotes the increase in aggregate demand. At present the banking system has large amounts of liquid resources and capital, which will allow rapid increase in credit activity in case the loan demand goes up.

Given that according to the existing forecasts 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 NBG will continue to monitor the developments in the economy and financial markets and will act accordingly.

The next meeting of the Monetary Policy Committee will be held on August 14, 2013.