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TIGHTENING OF MONETARY POLICY AIMS TO NEUTRALIZE INFLATION RISKS

February 12, 2014

Bankebi da Finansebi



Merab Kakulia, director of Center for Financial Stability and Competitiveness Research, reviews lari fluctuation again.

Among factors of lari devaluation, the expert names in the first instance rapid growth of money supply by the end of last year. This growth was connected to increased budgetary expenditures on the background of soft monetary policy of National Bank of Georgia (NBG), he notes and adds: optimal harmonization of monetary and fiscal policies is very important.

Import increase also had influence, being connected to economic recovery and seasonality, as well as external factors, namely devaluation of currencies of Georgia's trade partners against the US dollar and decline of currency inflows from tourism, Kakulia notes.

Regarding distinct strengthening of lari (started in previous week), Kakulia points that it was expected, because "exchange rate not only reached its new equilibrium point, but exceeded it due to panic sentiments".

Drop of exchange rate by almost 7% did not caused sharp rise in prices, giving reason to Kakulia to say that NBG "has generally adequate monetary and currency policy". He notes, however, that there is communication problem between NBG and the government.

Kakulia also points that tightening of monetary policy usually aims to neutralize inflation risks, however, there is no risk of breaching inflation target rate yet, so increase of monetary policy rate "is premature, but may become necessary in future".


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Source: Sarke Economic Press Monitor (Georgia)


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