IMF Cautions Georgia on Higher Rates Unless Inflation Spreads

Georgia’s central bank should avoid “moving too fast” to tighten monetary policy because inflation may slow by the end of the year, according to the International Monetary Fund.

“Commodity and energy prices will stabilize, and if inflation doesn’t spread to other sectors we expect it to decline in the second half of the year and reach about 8 percent by December,” Edward Gardner, the IMF’s senior resident representative in Georgia, said in an interview in the capital Tbilisi today.

The central bank raised its benchmark refinancing rate on Feb. 16 to 8 percent from 7.5 percent after annual consumer- price growth rose to 12.3 percent last month. The regulator increased borrowing costs because of its concerns about “imported inflation,” according to Gardner.

“The current level of the rate seems appropriate,” Gardner said. “But moving too fast toward monetary tightening without evidence that inflation is spreading will be dangerous.”

Georgia’s government plans to slow inflation below 10 percent by the third quarter of this year, Vera Kobalia, the economy and sustainable development minister, said last month.

Gardner also said Georgia’s foreign direct investment probably reached $600 million in 2010.

To contact the reporter on this story: Helena Bedwell in Tbilisi at hbedwell@bloomberg.net

To contact the editor responsible for this story: James Gomez at jagomez@bloomberg.net

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