Business Political Insights BPI.GE
TBILISI(BPI)- Over the past 3 weeks, the National Bank of Georgia has sharply increased the refinancing rate by 1% due to the threat of uncontrolled inflation.
The International Monetary Fund as well as some other financial institutions focused on the artificial devaluation of the national currency and a growing inflation.
The first results of monetary tightening may be shown in 3-4 months – if they come out. An increase in the refinancing rate has long-term goals, and this is the only right way, since the regulator’s activities has nothing to do with economic policy, the Rezonansi newspaper writes.
But this is not enough – the government should be involved in the processes to form a mechanism for stimulating the economy.
According to the NGO Society and Banks, as of September 1, 2019 Georgian banks issued 102,700 loans tied to the refinancing rate and along with an increase in the rate, interest expenses of borrowers also increase.
Tight monetary policy has its own expressed flaws – along with a decrease in inflation, it boosts economic stagnation as an increase in the refinancing rate is aimed at reducing the money supply as well as lending volumes. All this will definitely slow down economic growth.
The country will face a reduction in inflation and economic growth that are interconnected with each other. “Stagnation is very bad. Everyone will suffer – business, individuals, entrepreneurs . The mechanism is very simple – when the interest rate rises, the cost of loans for both business and individuals increases as a result, demand for loans falls that causes a slowdown in economic growth. This is the only thing the National Bank can do – there are no ways, except for reducing inflation and stagnation in the economy, ” expert Lia Eliava says.
The National Bank is still trying to curb inflation and the national currency’s collapse.
With the current external factors, the national currency rate should stand at GEL 2, 7-2, 8 per dollar, executive director of Bank of Georgia Archil Gachechiladze says.
Gachechiladze believes the national currency should start strengthening that will be boosted by the National Bank’s tightened monetary policy.
In the banker’s words, the external factors do not affect the national currency, and all fundamental reasons exist to ensure the strengthening of the Georgian lari.
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