Georgia holds rate, sees rate falling to neutral level

    Georgia’s central bank left its benchmark refinancing rate at 7.0 percent, saying there was no need to raise rates further as inflation expectations had been declining and “the policy rate in the medium term is expected to decrease to its natural level in the medium term” as one-off factors that pushed up inflation dissipate.
     In May the National Bank of Georgia (NBG) raised its rate for the second time this year – for total hikes of 50 basis points – but said further rate increases were not expected as inflation was expected to decline to its target level in 2018.
     The central bank today confirmed it still expects inflation to remain above its target this year due to supply side pressures, with a rise in tobacco products and fuel pushing up inflation in May by 2.6 percentage points to 6.6 percent from 6.1 percent in April.
     This rise in inflation, however, is temporary and inflation should start decelerating in the second half of this year and then reach the target in 2018.
      This year NBG targets inflation of 4.0 percent, down from its 2016 target of 5.0 percent. For 2018 the NBG will lower the target further to 3.0 percent, the rate it considers the long-run rate.


    The National Bank of Georgia issued the following statement: