The National Bank of Georgia (NBG), which in January also cut its rate and said it expects to reduce the rate further this year, also reiterated that inflationary pressures are still weak and inflation is forecast to remain within the target level of 3.0 percent in the medium term.
But to "mitigate possible future financial stability risks," the NBG said it was raising the minimum reserve requirement for funds in foreign currency deposits by 5 percentage points.
NBG cut its rate by another 25 basis to 6.50 percent and has now cut it by 50 basis points this year and by 75 basis points since July 2018 when it first began exiting from moderately tight monetary policy as external risks eased along with domestic demand and thus inflationary pressures.
In January NBG's president, Koba Gvenetadze, told Reuters the central bank would lower its rate to between 5 and 6 percent over the next two years.
In February Georgia's headline inflation rate rose slightly to 2.3 percent from 2.2 percent in January while the positive trends seen in the external sector since the start of this year were continuing with exports growing at a high rate while imports are only growing modestly, resulting in a narrower current account deficit, NBG said.
And while retail lending has slowed, NBG said business lending was up.
In the third quarter of last year, Georgia's gross domestic product slowed to annual growth of 3.7 percent from 5.6 percent in the previous quarter.
The exchange rate of the lari fell sharply in the second half of last year but has been more stable this year although it has weakened in the last month. Today the lari was trading at 2.69 to the U.S. dollar today, largely unchanged since 2.68 at the start of this year.
In December the International Monetary Fund (IMF) forecast Georgia's economy would grow 4.6 percent in 2019 after 5 percent last year with inflation averaging 3.1 percent this year after 2.8 percent in 2018.
The National Bank of Georgia issued the following statement:
"The Monetary Policy Committee (MPC) of the National Bank of Georgia (NBG) met on March 13 and decided to cut the refinancing rate by 25 basis points. Currently, the policy rate stands at 6.5 percent.
According to forecasts, since the beginning of the year, similarly to 2018, the inflation will remain within the target level of 3 percent. The annual inflation was equal to 2.3 percent in February. According to the current forecast, other things equal the inflation will fluctuate around the target rate in the medium term.
Along with the weakening of external risks the National Bank continued the gradual exit from moderately tightened monetary policy, which started in July 2018.
According to the leading economic growth indicators the demand-side inflation pressure is still weak, as are the macroeconomic risks coming from the external sector. Hence the MPC decided to cut the policy rate. Further easing of the moderately tight monetary policy will depend on how fast the output gap will close.
The positive trends in the external sector have been maintained in the beginning of 2019. The goods export continues growing at a high rate, whereas the import growth is modest, resulting in the improvement of the current accound deficit. In the first months of the year the retail lending has somewhat slowed down, however the business lending is on the up.
In order to mitigate possible future financial stability risks, the Monetary Policy Committee decided to increase the minimum reserve requirements for funds attracted in foreign currency by 5 percentage points.
The NBG will continue to monitor the developments in the economy and financial markets and will use all means and instruments at its disposal in order to ensure the price stability.
The next meeting of the Monetary Policy Committee will be held on May 1, 2019. "
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