Monetary policy (refinancing) rate
The main monetary policy instrument of the National Bank of Georgia is the (refinancing) rate – the interest rate applied to its refinancing loans, which is considered a reference point for market rates.
The Mopnetary Policy Committee's decisions on changes to the monetary policy rate rely on the current and expected developments in the economy and financial markets. During the formulation of monetary policy the projected inflation rate is taken into account because the implemented monetary policy is reflected on the economy with a time lag. If projected inflation is above the target inflation rate, the NBG will tighten monetary policy by raising the policy rate to combat a future surge in the general price level. As a consequence, aggregate demand drops, leading to a decrease in aggregate price level. On the other hand, during low levels of aggregate demand, when the current forecasts of inflation are below the target, the NBG will pursue an expansionary monetary policy by lowering the refinancing rate. A decrease in the monetary policy rate transmits to interest rates on loans, which in turn stimulates credits to the economy and encourages aggregate demand.