The Monetary Policy Committee (MPC) of the National Bank of Georgia (NBG) met on December 9, 2020, and decided to keep the refinancing rate unchanged at 8.0 percent, - reports the National Bank of Georgia.

“Annual inflation has been at 3.8% in recent months. According to the current forecast, other things equal, the inflation rate will hover close to the target level in the first half of 2021. Inflation dynamics is mainly determined by weak aggregate demand and this impact is expected to persist next year as well. Still, the effect on aggregate demand coming from increased pandemic-related social and economic support fiscal measures of 2020-2021 is noteworthy. The Monetary Policy Committee also took into account the supply-side factors, such as the increase in production costs due to additional restrictions in the wake of the pandemic. The Committee also took note of the uncertainties surrounding the prolonged pandemic and the global restrictions. Moreover, due to the still high dollarization of the economy, the room for easing monetary policy is limited. According to the current estimates, a tight monetary policy may be necessary for longer, subject to inflation expectations and the dynamics of economic activity. Depending on the economic developments, the Committee does not rule out the need for an increase in interest rate in the future.

According to preliminary indicators, aggregate demand is weak. Based on rapid estimates, economic activity fell by 3.9% year-on-year in October and by 5.1% over the first ten months of the year. After the decline in 2020, economic activity is expected to recover gradually from 2021. According to the current forecasts, other things equal, domestic demand will be the main driver of economic growth in 2021. In contrast, external demand remains significantly reduced and slow growth is projected for 2021 as well. The revenues from international travelers are minimal and, according to preliminary data, fell by 94% in October. Amid weak aggregate demand, imports of goods fell by annual 24% in October. After a small increase in the previous month, exports declined again. In contrast, the high growth of remittances persists.

The NBG continues to monitor the developments in the economy and financial markets and will use all available tools to ensure price stability.

The next meeting of the Monetary Policy Committee will be held on February 3, 2021”, - reads the statement.