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National Bank raises interest rates to fight inflation

By Christina Tashkevich
Friday, May 2
With March’s inflation in the double-digits, the central bank says it is adopting a tighter monetary policy to get inflation down to its eight percent target.

Inflation was 12.3 percent in March, compared to March of last year, with average year-on-year inflation at 9.5 percent.

The National Bank of Georgia chalked up most of the increase to global pressures on energy and other commodity prices, in turn pushing up prices with key Georgian trade partners.

In April, Finance Minister Nika Gilauri praised the central bank for tightening its monetary policy to reduce inflation.

“The government… applauds the Bank’s decision on April 18 to raise the key interest rate from 11 percent to 12 percent,” Gilauri said.

The Bank said increasing interest rates—which should pull down inflation by shrinking the money supply—will lower inflation to eight percent by the end of this year.

The government also lauded the central bank’s flexible exchange rate policy for keeping inflation relatively low in Georgia, compared to more than 18 percent annual inflation in Azerbaijan and over 26 percent in Ukraine.

But former economy minister and critic of the government’s economic reforms Lado Papava claims the government is glossing over the country’s real inflation rate. He calculated the January 2008 inflation rate to be 3.2 percent, instead of the 2.5 percent reported by the government.

“The statistics department is under control of the government and spreads absolutely incorrect information,” Papava told journalists in April.

In March, the International Monetary Fund recommended the government adopt tighter fiscal policy, and offered words of support for efforts to bring inflation to a single-digit figure.