Georgia to keep money tight but sees risks in coronavirus, central bank governor says

TBILISI, March 13 (Reuters) – Georgia’s central bank plans to continue tight monetary policy until inflation expectations are anchored, but exiting the policy will depending on the impact of the coronavirus epidemic, the central bank’s governor said on Friday.

The further spread of coronavirus will threaten Georgia’s forecast the economy will grow 4.5% this year, Koba Gvenetadze told Reuters in an interview.

The South Caucasus country of 3.7 million, which serves as a transit route for Caspian Sea oil and gas and a popular tourist destination, reported 5.1% year-on-year growth in January, up from 3.5% a year ago and 3.8% in December.

“Further spread of coronavirus may impact visitors’ inflow and, therefore, the whole economy,” Gvenetadze said, adding that reduction of consumption and a slowdown by the global economy would also curb economic growth in Georgia.

He did not specify how much gross domestic product might fall.

Gvenetadze said that the central bank would maintain its tight monetary policy until medium-term inflation expectations decline to the target level of 3%.

“Monetary policy is expected to remain tight, until inflation expectations are anchored and only after that the national bank expects to gradually exit the tight monetary policy stance, with the policy rate approaching its neutral level of around 6.5% in the medium term,” Gvenetadze said.

Annual inflation in February stood at 6.4%, up from 2.3% in February 2019 and unchanged from 6.4% in January this year. Last year, annual inflation was 7% because of an increase in excise taxes and the depreciation of the currency against the U.S. dollar, in part because of a travel ban imposed by Russia and political instability in the country.

The central bank had been raising interest rates since September before leaving its main rate at 9% on Jan. 29. Its next policy meeting is set for March 18.

Gvenetadze said that inflation was expected to decline over the course of this year.

“According to our current forecast, other things being equal, the inflation will continue to decline, approach the 3% target in the third quarter and go even below it toward the end of the year, after which it will converge to target rate in the medium term,” he said.

He added that a stable macroeconomic environment with low inflation, low and sustainable current account balance and prudential economic policies would help to avoid sharp fluctuations of the lari currency. (Editing by Larry King)

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