Georgia's economists predict decrease in refinancing rate

By Trend

The decision of the National Bank of Georgia (NBG) to raise the refinancing rate is understandable amid the global challenges due to the hostilities between Russia and Ukraine, and the subsequent economic sanctions imposed on Russia, Mikheil Kukava, Senior Consultant in Public Financial Management (PFM) at the Policy and Management Consulting Group (PMCG), told Trend.

The NBG raised the refinancing rate from 0.5 percent to 11 percent on March 30, 2022. The previous rate increase occurred in December 2021, when the regulator also raised the rate by 0.5 percent - to 10.5 percent.

However, while the NBG’s statutory mission is price stability rather than economic growth, the monetary policy committee could have opted not to raise the rate, the expert said.

"We hope the Monetary Policy Committee will opt for lowering the refinancing rate on May 11, 2022," Kukava said.

As for the impact of this decision, the consultant explained that in the short and medium-term, the tightening of monetary policy through the interest rate channel will affect aggregate demand and, ultimately, the dynamics of inflation through the channels of lending, and exchange rate, and expectations. The long-term impact of this decision is limited, although it will also have long-term consequences.

Meanwhile, the PMCG consultant does not expect any decrease in the inflation rate in Georgia, although it was predicted to decline already from March.