NBG increases its policy rate by 50bps to 7.0%
At its meeting on September 4, 2019, NBG’s monetary policy committee increased the policy rate by 50bps to 7.0%, first rate hike since December 2017. This decision was guided by increased inflation expectations related to GEL depreciation. The annual growth in consumer prices came in at 4.9% in August 2019. NBG cited that increased tobacco excises remain one of the major contributors to high inflation (0.8ppts), while the pass through of the exchange rate depreciation to inflation also increased recently. Meanwhile, demand-side pressure on inflation is limited as core inflation which excludes food, energy and tobacco prices, is still low at 2.4%. Being committed to price stability, NBG expressed readiness to further continue policy tightening until the pressure from exchange rate recedes. According to NBG, the inflation will remain above the 3.0% target during this year, will start to decline from March 2020 and stay close to target in the medium term. Regulator also expects further improvement in CA deficit on the back of improved external balance despite Russia’s direct flight ban and related tourism weakness. Next monetary committee meeting will take place on 23 October 2019. If necessary, the committee will consider the possibility of extraordinary meeting.
Annual inflation was 4.9% in August 2019
Annual CPI inflation was 4.9% in August 2019 up from 4.6% in previous month, according to Geostat. Core inflation (non-food, non-energy, non-tobacco) was 2.4% in August 2019 up from 1.9% in previous month. Annual price changes were driven by price increases in food and non-alcoholic beverages (+8.0% y/y, +2.38ppts), alcoholic beverages and tobacco (+13.8% y/y, +0.92ppts) and transport (+4.4% y/y, +0.53ppts) categories. Meanwhile, prices were down in clothing and footwear (-6.9% y/y) and communication (-2.4% y/y) categories.
International reserves up 27.0% y/y in August 2019
Gross international reserves were up 27.0% y/y to US$ 3.7bn in August 2019 according to NBG. On a monthly basis reserves also increased by 0.6%. There was one FX intervention in August, where NBG sold US$ 32.8mn to curb GEL depreciation. Change in reserves was attributed to government and banking sector FX operations and/or asset revaluation.
