OREANDA-NEWS. The Monetary Policy Committee (MPC) of the National Bank of Georgia (NBG) decided to increase the refinancing rate by 25 basis points to 4%.

According to current forecasts, inflation will reach its target value in the second half of 2014. Overall annual CPI inflation in January was 2.9%, whereas monthly inflation was 0.8%.

The end of 2013 saw an increase in economic activity. According to preliminary estimates, economic growth in November-December exceeded 8%, which means that the estimated growth rate of the fourth quarter is 6.9% and the total GDP growth in 2013 is 3.1%. The economic growth in the fourth quarter was caused by both foreign demand (which was active in previous periods as well) and an increase in domestic demand. The latter was also manifested in the high annual growth rate of imports, in particular the import of investment goods, which should stimulate the revival of economic growth in the future.

Bank credit activity grew in the second half of 2013, particularly in the last months of the year. Excluding the exchange rate effect, the banks' loan portfolio grew by 16% in 2013.

Since August 2013 the nominal effective exchange rate has depreciated by 2.8%. According to the NBG's estimates, the effect of this depreciation on consumer prices is about 1 percentage point, which has already been accounted for in the current inflation forecast.

Economic growth has been recovering in recent periods and this trend is expected to continue in the first half of 2014. Preliminary indicators, as measured in January, also point towards the retention of this trend. Based on the aforementioned points, the Monetary Policy Committee decided that there is no further need to retain an accommodative monetary policy and elected to increase the policy rate by 25 basis points. The National Bank has thus started to withdraw the accommodative monetary policy, provided that the aforementioned trends are maintained in future periods.

The next meeting of the Monetary Policy Committee will be held on March 26, 2014.