Georgia holds rate on geopolitical risks, wants to tighten

    Georgia's central bank held its refinancing rate steady at 4.0 percent, saying it was maintaining its current policy stance due to geopolitical risks that have increased economic uncertainty.
    However, the National Bank of Georgia (NBG) said it still considers it necessary to exit the currency accommodative policy stance "given the improvements in economic activity and the increase in expected inflation, which gradually gets closer to the target value."
    In February the bank's monetary policy committee raised its rate by 25 basis points after cutting it by 150 points in 2013 as it started a gradual exit from the current policy stance. But in March it maintained the rate in light of the conflict between Russia and Ukraine.
    Georgia, which gained independence from the Soviet Union in 1991, is located in the Caucasus region. The country borders the Black Sea to the west, Turkey to the south and Russia to the north. The Crimean peninsula, which has been annexed by Russia from Ukraine, lies in the Black Sea.
    Georgia's headline inflation rate eased marginally to 3.4 percent in April from 3.5 percent in March and 3.46 percent in February following deflation in most of 2012 and 2013.
    The central bank, which targets inflation of 6.0 percent, forecast that inflation will gradually rise and most likely reach its target value in the second half of this year. Last month it forecast inflation between 5 and 6 percent in the second half of 2014.

    The NBG said economic activity was continuing to grow at a moderate pace, with preliminary estimates showing first quarter growth of 7.4 percent, partly due to base effects.
    In the fourth quarter of 2013, Gross Domestic Product expanded by an annual 7.1 percent, sharply up from the previous four quarters where growth averaged 2 percent.
    But Georgia's output gap remains negative, the bank said, noting a relative slowdown in credit activities.
    "The dynamics of further changes in monetary policy will depend on the dynamics of expected inflation, tendencies in economic growth, global and regional economic development," NBG said.

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