The National Bank of Georgia (NBG) raised its key refinancing rate by 50 basis points to 8% on December 16, announcing that a further increase "in the coming period" is unlikely. The regulator has increased interest rates from 4% in February to 8% in December in seven instalments in order to contain inflation.
Georgia's annual inflation reached 6.3% in November, up from 5.8% in October, and above the regulator's 5% target. This is the highest inflation rate that Georgia has experienced since August 2011. NBG expects it to come down to 5% in the second half of 2016.
The move comes after the US Federal Reserve increased its interest rate by 25 basis points to 0.4% on December 16, the first increase since 2006. However, NBG cited the higher-than-expected domestic inflation as the reason behind its increase. "The tightening of monetary policy by NBG must have a positive effect on the decrease in inflation expectations," its monetary policy committee said after a December16 meeting.
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