Georgia's central bank kept its key refinancing rate unchanged at 6.5% on October 25, but said expectations of a weak demand and low inflation indicate more rate cuts in the next two quarters.
The regulator has intervened to gradually cut the rate from 8% to 6.5% in four interventions between April and September, responding to the appreciation of the Georgian lari and a decline in inflation.
“The reduction in the policy rate implemented in the previous periods has not completely passed on to the economy, so it is expedient to implement the normalization policy in a gradual manner. According to the current forecast, other things equal, the monetary policy rate may be expected to decrease to 6% in the coming two quarters,” the bank explained in a statement.
Above-target inflation was an issue for Georgia in 2015, when a 27% depreciation of the currency pushed the lari above the central bank's 5% inflation target. The regulator responded by tightening monetary policy in phased interventions throughout the year, which saw its key rate increase from 4% in January 2015 to 8% by the end of the year. However, the currency has appreciated by more than 10% since May. Annual inflation reached its lowest level so far in September, easing to 0.1% from 0.9% in August.
According to the central bank, inflation will reach its target in the second half of 2017.