Georgia cuts rate 2nd time, but raises RRR for FX funds

     Georgia’s central bank lowered its benchmark refinancing rate for the second time in a row and said “further easing of the moderately tight monetary policy will depend on how fast the output gap will close.”
    The National Bank of Georgia (NBG), which in January also cut its rate and said it expects to reduce the rate further this year, also reiterated that inflationary pressures are still weak and  inflation is forecast to remain within the target level of 3.0 percent in the medium term.
     But to “mitigate possible future financial stability risks,” the NBG said it was raising the minimum reserve requirement for funds in foreign currency deposits by 5 percentage points.
     NBG cut its rate by another 25 basis to 6.50 percent and has now cut it by 50 basis points this year  and by 75 basis points since July 2018 when it first began exiting from moderately tight monetary policy as external risks eased along with domestic demand and thus inflationary pressures.
     In January NBG’s president, Koba Gvenetadze, told Reuters the central bank would lower its rate to between 5 and 6 percent over the next two years.
    In February Georgia’s headline inflation rate rose slightly to 2.3 percent from 2.2 percent in January while the positive trends seen in the external sector since the start of this year were continuing with exports growing at a high rate while imports are only growing modestly, resulting in a narrower current account deficit, NBG said.
    And while retail lending has slowed, NBG said business lending was up.
    In the third quarter of last year, Georgia’s gross domestic product slowed to annual growth of 3.7 percent from 5.6 percent in the previous quarter.
     The exchange rate of the lari fell sharply in the second half of last year but has been more stable this year although it has weakened in the last month. Today the lari was trading at 2.69 to the U.S. dollar today, largely unchanged since 2.68 at the start of this year.
     In December the International Monetary Fund (IMF) forecast Georgia’s economy would grow 4.6 percent in 2019 after 5 percent last year with inflation averaging 3.1 percent this year after 2.8 percent in 2018.

   
     
      The National Bank of Georgia issued the following statement: