The Monetary Policy Committee (MPC) of the National Bank of Georgia (NBG) has increased the refinancing rate by 50 basis points to 4.5% following to the Lari devaluation (1 USD now costs 2.0248 GEL)
Interest rate for refinance loans increases
By Tea Mariamidze
Friday, February 13
The amendment is very likely to increase interest rates.
The changes mean those with a loan taken out in Laris the national currency face a 0.5 percent loan rate increase, while those who have taken out loans in US dollars will experience a 20 percent increase.
The National Bank reports that 4,902 individuals had mortgages linked to the refinancing rate and 2,111 legal entities had a business loan.
"We tried to avoid a price increase as a result of the Lari depreciation and to maintain financial stability in the country, said BoG president Giorgi Kadagidze, noting that tightening the monetary policy was essential for keeping the Lari rate.
The head of the National Bank emphasized that the Lari devaluation was because of external factors and the general slow pace of economic advancement in the country.
He stresses that inflow of tourists and foreign investments will change the situation positively however.
Economist Vakhtang Lezhava believes that a tightening of monetary policy will have a short- term effect if the government fails to advance the state economy.
We will always face problems with regard to the Lari devaluation if there is just a small amount of investment and tourism in the country. The government must do its best to promote these fields, he said.
Businessman Fady Asli states that the current situation regarding the Lari should not be dramatized. However, the government should closely observe the process.
The government has declared that it will do its utmost to encourage tourists and foreign investment in the country. Several steps have been made to ease the inflow of foreigners in the country, the introduction of internet visa procedures is among them.