National Bank Increased Monetary Policy Rate to 6.25 percent on June 16

On June 16 the monetary policy committee of the National Bank of Georgia (NBG) increased the monetary policy rate by 125 base points to 6.25 percent.

Previously, on November 25, 2009, the rate was lowered to 5 percent from 6 percent. NBG is based on the inflation growth risks in the long-term period when defining the rate.

In May 2010 the annualized inflation rate made up 4 percent. NBG also changed the inflation forecast index, under which in the medium-term period the rise in consumer prices is expected to record over 6 percent.

NBG says in June the annualized growth in M3, broad money aggregate, exceeded 40 percent. The rise in money supply is related, on the one hand, to fiscal stimulus of the economy and, on the other hand, the growing rate of economy crediting starting the new year. If such a growth in money supply does not meet the economic growth rate, the inflation risks arise in the medium-term period.

Like March and April, the trade deficit also enlarged in June in the aftermath of the rise in domestic demand. The increased trade deficit resulted in drop in private capital inflows and the GEL exchange rate depreciated after the US Dollar strengthened positions on the global market.

NBG will hold the next meeting of the monetary policy committee on July 7, 2010.