OREANDA-NEWS. The Monetary Policy Committee (MPC) of the National Bank of Georgia (NBG) decided to increase the refinancing rate by 50 basis points to 5 percent. At the same time the interest rate for the standing refinancing loans increases to policy rate plus 150 basis points.

Due to GEL depreciation the inflation expectations have risen, which can be reflected in the risks of the inflation deviating from its target level in the medium term. Given the aforementioned the Monetary Policy Committee considers necessary to increase the monetary policy rate gradually to 5.5 percent by the end of the year.

Annual inflation in April was 2.5%. The impact on the inflation of the increase in intermediate costs related to the service of foreign currency-denominated debts (due to the GEL depreciation) was partially balanced by the decrease in fuel prices. The deterioration in economic trends in our main trade partners continues to affect negatively Georgian economy. Goods export, remittances and tourism inflows have all decreased.

However the recent changes in the exchange rate have already started to affect the import demand, which in turn ensures the adjustment of external imbalance and fosters domestic demand. According to preliminary information the economic activity in the first quarter was higher than forecast. Despite that, the loan growth has significantly slowed down in April. According to current forecast the inflation will grow at a moderate speed and will reach its 5% target value by the end of 2015.

The next meeting of the Monetary Policy Committee will be held on July 1, 2015.