Milder Monetary Policy To Woo Banks
26 January, 2012
Milder Monetary Policy To Woo Banks

Central Bank of Georgia goes ahead with milder monetary policy but no increase in economic activity ensues as a result. Only banks that can have loans for lower interest rate at Georgian Central Bank seem to take benefits.  


The Monetary Policy Committee (MPC) of the National Bank of Georgia (NBG) met on January 18, 2012 to lower its Main Policy Rate (the refinancing rate) by 25 basis points to 6.5 percent. The NBG makes the refinancing rate milder by 25

basis points almost each month starting the July of 2011 cutting the rate from 8% fixed during the first half of 2011 to 6.5% ultimately.

Based in the NBG data, the annual inflation remained low in December of 2011, at 1.9%. Core inflation (net of food and energy) is still low as well amounting to 0.4%. According to the existing forecasts, inflation is expected to remain low in the first half of the year but this trend is expected to be changed starting summer although the inflation rate will remain below the target [6%], the NBG believes.

The trade deficit keeps increasing in the recent period, mostly due to the increase in imports.

According to the NBG, the expected decline in the economic activity of EU countries is supposed to have a negative impact on the trade balance of Georgia, which will possibly result in additional weakening of the aggregate demand in the country.

“Existing forecasts indicate that given the unchanged policy stance, the inflation rate will remain below the target. Hence the MPC of the NBG considered it appropriate to continue easing the monetary policy and decided to decrease the refinancing rate by 25 basis points. The NBG considers that at present the recent monetary easing will be sufficient to keep the inflation in the medium term at the target level,” the NBG statement reads.

However the existing price hike on food and primary goods make some experts as well as consumer to question official statistics as well as the ease of monetary policy. Some economic analysts think the underway milder monetary policy is not pertinent against the backdrop of the parliamentary elections 2012 in prospect and impending global economic crisis when the EU and the US have to handle with default risks.

Ditrikh Muller, a financial analyst with the Georgian Investment Group, thinks this elections  must be an unprecedented expensive  for Bidzina Ivanishvili, Georgian tycoon with up to USD 6 billion in pocket, founded an oppositionist political party and plans to participate in the elections.

“Food prices increased by around 20% compared to the past year our everyday expenses show and how can the inflation rate stand at 2%?” Muller wonders. “If milder monetary policy is a reasonable move grounded on economic factors it should be resulted in decreased interest rates and increased economic activity, but I see no token of it.”

Nodar Khaduri, an economic analyst, does not have big trust in official statistics either and see no lower interest rates or more vivid economic activity but he believes that the annual inflation rate really decreased to 2% much below the targeted 6%. But consumers cannot feel this relief as far as they compare prices with the 2009 when they were much lower.

But too low inflation rate may cut down the GDP and revenue figures lower in 2012 for the state budget 2012 is planned on 6% of inflation.

“Therefore the NBG eases policy rate to keep inflation in line with this year’s target figure, and that’s right.  Otherwise the macroeconomic data of GDP and revenues will decrease,” he elaborated.”Banks do not cut down interest rates as far as they observe the long-term trends. They reduce rates only if they believe that the inflation rate will go down in longer prospect.”

That seems scarcely possible as all international forecast as well as the NBG expects inflation pressure get tighter starting summer.

On the other hand the recent TV ad-rolls of banks touting deposits at special [higher] interest rates makes one presume that interest rates on credits are not supposed to decrease. Muller supposes that banks are the single commercial bodies that enjoy the lowered policy rate for they take loans under lower rates at the NBG.

“This milder monetary policy seems like a pre-election move to woo banks alone in order get bigger financing for the pre-election campaign, this will be incomparably expensive elections you know for Ivanishvili participates in its and promise not to spare finances and the ruling power needs much bigger resources than it needed for any other elections before,” Muller said.


Other Stories
The World Digital Mining Summit to be held in Georgia
The summit is scheduled to take place between 21st-23rd September in the Hualing Hotel, Tbilisi, Georgia.
Galt and Taggart - Tourism Boom Continues in Georgia
Tourism has become one of the key drivers for the Georgian economy. Galt and Taggart has recently published research about the Georgian tourism sector in the first half of 2018.
"The worst dream for Putin is that Russians want to live in Georgia"
This year, visitors to the Adjara region would notice that there is a boom in construction in and around Batumi.
Underground gas storage facility to be built in Georgia
KfW, a German government-owned development bank signed a EUR 150 million promotional loan with the state-owned Georgian Oil and Gas Corporation (GOGC) for the construction of the first underground gas storage facility in Georgia.
New gambling rules for Georgia
Georgian lawmakers are preparing a new draft law relating to online-casinos and gambling that will seek to curb gambling addiction in Georgia.
How expensive is it to visit Georgia?
The Georgian Lari (GEL) is the official currency of Georgia and is the only legal means of payment in the entire territory of Georgia.
Trade with the EU and the Commonwealth of Independent States (CIS) has grown significantly
Trade with the EU and the CIS has grown by 26% and 33.5 % respectively, says GeoStat, the Georgian National Statistics Office.
The unemployment rate decreases in Georgia
The unemployment rate decreased in Georgia by 1,9% and amounted to 12.1% in the 2nd quarter of 2018 compared with the previous quarter,
Memorandum of Understanding to be signed between Georgia and Malaysia
According to the Georgian Ambassador to Malaysia Nikoloz Apkhazava, Georgia plans to sign a Memorandum of Understanding (MoU) with Malaysia.
“Blauenstein Georgia” due to expand in Georgia
“Blauenstein Georgia” is planning to open more shops in Georgia. It is an agriculture company that sells meat products, meat and convenience food.
The amount of Direct Foreign Investment rises in Georgia
According to the information of the National Statistics Office of Georgia, the amount of direct foreign investment in Georgia has risen
It’s going to get  harder for foreigners to get residence permit in Georgia
It’s going to get harder for foreigners to get permit of residence in Georgia.
Mziuri Park in Tbilisi to be renovated soon
It was the dream of prominent Georgian writer Nodar Dumbadze that when the original Mziuri park was constructed and opened in 1892 that it should be a park for children,
Winemakers to produce Kvanchkara in its place of origin - Racha
Khvanchakara is a semi-sweet Georgian red wine which originates from Racha, in the western part of Georgia. Kvanchkara is made of two types of grape Mujuretuli and Aleksandrouli.
The level of Georgian wine and Chacha exported has increased
The National Wine Agency of Georgia has recently published statistical information about the level of Georgian wine and Chacha exported between January and July, 2018.
New fire engines to be Manufactured in Georgia
The Acting Head of the Emergency Management Agency Shalva Khutsishvili said that the old Zili fire engines (which were made in the USSR) will be phased out and replaced with new ones, manufactured in Georgia.
Georgia witnesses a record number of tourists
The Georgian National Tourism Administration publishes statistical information about international visits to Georgia.
Canadian businessman plans to build a hotel in Bakhmaro
Canadian businessman Vadim Malishev plans to build a hotel in Bakhmaro resort, Guria, in the western part of Georgia.
Coffee Factory will open in Tbilisi in October
The first coffee factory (which will be located on the Kakheti highway) in Tbilisi will open in October.
Places in Georgia where real estate is the most expensive
The real estate market in Georgia is growing annually. In Tbilisi as well as other regions of Georgia new developments are increasingly taking place.
How much does a vacation cost in Tbilisi?
It is the middle of summer and those who have not yet taken a vacation are looking for an appropriate place for sure!
The price for extreme sports in Georgia
Georgia offers a variety of options to extreme sport lovers.
The number of Georgians who own property abroad increases
The number of foreign properties owned by Georgians is increasing.
How much does Taxi cost in Tbilisi?
Stories how Taxi drivers try to deceive passengers and charge them with more money than they should pay are known for everybody all over the world.
What are the highest paid areas in Georgia
According to the data collected by the National Statistics Office of Georgia in the first quarter of 2018 the highest paid jobs in Georgia are found in the financial and insurance fields.
Exchange Rates
GEL Exchange Rate
Other Stories
Recently Toyota rolled out Global Campaign under this slogan that reflects the Olympic and Paralympic Spirit of Encouragement,
A couple from Switzerland combines Swiss tradition and technology with Georgian products. Their cheese is made in the Georgian mountains and sold in local stores and hotels.
It has been more than five years since the residents of Lilo village, near Tbilisi, cannot open their windows.
63 000 GEL was received by the Georgian Agro Export Group which is just a small part of the European Neighbourhood Programme for Agricultural and Rural development.
Georgian entrepreneur Guka Tavberidze, who runs his own business in the UK and does it quite well, has been invited by BBC
The grand opening of 7-star The Biltmore Hotel Tbilisi took place in Georgia’s capital on July 31.
DUSHETI, Georgia – The Georgian government and the World Bank will allocate USD 5.6 million (12 million GEL) to fund
A new Georgian clothing brand named Person has emerged in Georgian market.
Georgia is in the midst of an economic maelstrom, Euronews reports.
Situation at Georgia’s mineral water market is interesting: over the last year, the volume of export has grown by 56 percent. According to “GeoStat”, over $114 million worth of mineral water was sold
GEL Exchange