The Georgian National Bank increased its key policy rate by 50 basis points to 4.5% in an attempt to, as it put it, “neutralize the increase in inflation expectations.”
The central bank announced about intention to tighten monetary policy in late January amid depreciation of the Georgian national currency Lari (GEL) against U.S. dollar.
The central bank’s monetary policy committee, which met on February 11, said that “given the high rate of dollarization in Georgia, the depreciation [of Lari] against U.S. dollar creates additional inflation risks.”
GEL lost 8.5% of its value against the U.S. dollar since early January; but GEL gained 0.84% to 2.0248 per dollar after the central bank sold 40 million U.S. dollars in the market on February 11.
Annual inflation stood at 1.4% in January, after 2% in December, far below 5% target.
“The inflation forecasts significantly depend on exogenous factors and contain risks of changing in both directions,” the central bank said.
The previous time when the central bank changed its key rate was in February, 2014, when it was increased by 25 basis points to 4%.