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Inflationary processes intensified in the wake of the depreciation of the GEL

By Inga Kakulia
Tuesday, November 5
Koba Gvenetadze, President of the National Bank of Georgia, spoke about the increased inflation rate statistics published by Geostat. According to the information released by Geostat, the core inflation is 3.4 percent without tobacco, which is close to target inflation. This indicates that demand-side inflation factors are not strong and that the inflation rate at this stage is mainly due to the depreciated exchange rate, says the president of the National Bank.

Gvenetadze also spoke about the results of the IMF mission and noted that the National Bank has fulfilled all the criteria outlined in the program.

"I am pleased that another review of the program between the IMF mission and the Georgian government has ended successfully and the program has been extended for another year. The one-year extension of the program is important for our country in terms of enhancing the credibility of economic policy in the light of external shocks, especially given the volatile situation in the region and the growing impact of the "trade wars" on the global economy. For the information, extending the program means doing two additional reviews, and as for the IMF, it will not increase but will remain unchanged, which equals 100 percent of the country's quota in the organization, or about $ 290 million. About $ 208 million has been received so far. It is noteworthy that the National Bank has fulfilled all the criteria provided by the program. Thanks to sound macroeconomic policies and reforms under the program, the economy has been able to overcome the recent negative shock with minimal loss. In particular, despite the declinin revenues from the tourism sector, foreign demand remains strong amid a ban on flights from Russia,” explained Koba Gvenetadze.

Gvenetadze also mentioned that economic activity is steadily increasing, with the foreign sector making a significant positive contribution; The current account deficit was at a historic low in the country in the first half of the year and is expected to improve significantly throughout the year compared to previous years.

Gvenetadze said that in turn, improving current account deficits will reduce the strength of external shocks to the Georgian economy in the future; In the wake of the recent depreciation of the GEL exchange rate, the rate of price growth has accelerated. In response, the National Bank has begun tightening monetary policy, which will continue until the effect of the exchange rate depreciation on the rise in prices expires.

“According to our forecast, in other equal conditions, inflation will remain above the target level this year, will start to decline in March, will drop to the target in the second half of the year, and then gradually approach the bottom. In the medium term, inflation will be close to the target. Exchange rate flexibility to cope with external shocks has become even more urgent, highlighted once again by the IMF mission visiting Georgia. For Georgia, this is a key precondition for maintaining competitiveness and reducing current account imbalances, especially in turbulent situations,” noted the president of the National Bank.