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IMF Says Georgia May Need to Raise Rates Further on Prices

The International Monetary Fund said Georgia’s central bank may have to raise interest rates further after inflation accelerated to 13.9 percent in March.

“Inflation is hitting people, it’s hurting people, and so the government and the central bank do need to respond,” David Owen, the IMF’s director for Central Asia and the Middle East, said today in an interview in the capital Tbilisi. Georgian price growth has been driven mostly by commodity and fuel prices, he said.

The National Bank of Georgia has maintained its benchmark refinancing rate at 8 percent since February. The bank raised the rate to 7.5 percent from 7 percent in October 2010, then held it steady until the half-point increase in February.

The government’s efforts to lessen the impact of rising prices on consumers include 30 million lari ($18.3 million) of food vouchers, distributed in March, and coupons for free electricity.

Georgia’s $11.7 billion economy will probably grow 5.5 percent this year after a 6.4 percent expansion in 2010, Owen said. The country’s economic crisis “was not as deep” as some other countries in the region, largely thanks to international aid received after a war with Russia in 2008.

The Black Sea country won pledges of $4.55 billion of international aid, including $1 billion from the U.S., after the war. Pledged aid has since increased to $5.1 billion, according to the government.

Owen called on Georgia to reduce its budget deficit and foreign debt to improve investor confidence and cut its dependence on international aid.

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

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

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