ეკონომიკური პროფილი (Jan 2022)
REFINANCING RATE AND ITS IMPACT ON THE COUNTRY'S ECONOMY IN THE CONTEXT OF THE COVID PANDEMIC
Abstract
The conduct of monetary policy in the Covid-Pandemic conditions proved to be special, According to numerous experts and organizations, the global economic recession caused by the Covid-Pandemic has equaled the global financial crises. In such conditions, when the world is trying to deal with the virus, it seems that the management of state economic parameters and monetary policy are a secondary category, but in reality, monetary policy makers during this period constantly tried to pursue policies that would stimulate the economy and economic agents, including Georgia. The trend in monetary policy was similar in most countries, taking into account differences in national characteristics However, it should be noted that to date, both Georgia and the world have not emerged from the Covid-Pandemic situation and it is difficult to discuss concrete results, but the existing measures taken since the Covid-Pandemic began give us some basis for analysis. The general trend is, of course, to pursue a more lenient policy, but the timing is relatively different, Georgia's practice in this regard was relatively unpredictable, as it is impossible to pursue a policy of depreciation of money on the one hand, and at the same time have a negative balance of payments and the national currency is constantly devalued. Consequently, these issues were a challenge for Georgia even before the pandemic, and during the pandemic they became more pronounced, meaning an increase in the refinancing rate and maintaining a high level of the national currency exchange rate. Although the measures taken by the National Bank of Georgia during the Covid-Pandemic period are not long-term and should not be considered effective, because neither the interest rates nor the national currency could withstand the main pressure, which will have more negative consequences for the society and the future. For the economy. According to the Organic Law on the National Bank of Georgia, its main task is to ensure price stability. Price stability, in itself, implies maintaining moderate and low levels of inflation. Inflation is the main stimulus that poses the greatest threat to price stability and, consequently, the purchasing power of the national currency. Ensuring price stability is one of the main foundations for the current and promising development of the national economy. This is due to the fact that it implies low levels of inflation, the latter of which determines the purchasing power of the national currency, which is directly reflected in the long-term stable growth of the economy. Stability of the national currency is achieved when the projected inflation is as close as possible to the target, and when these indicators - especially the forecasted inflation - exceed its target level, it is at this point that the monetary policy rate is involved to ensure stability in the economy. The mechanism of its operation is simple, the tightening of the interest rate increases the market interest rate, which reduces the demand for loans in the conditions of increased interest rates and suppresses the joint demand through this channel, Relatively low demand will eventually reduce the level of inflation. Predictable and stable inflation rates guarantee the purchasing power of the national currency and price stability. While the National Bank reduces the refinancing rate, it increases the demand for monetary resources, which in itself increases the aggregate demand and led to the provision of price growth and inflation targets. Each monetary policy regime operates differently, but mainly serves one purpose, the stability of the economy, which in itself assumes the regulation of various macroeconomic indicators, so as not to harm the achievement of the main goal. As we have mentioned, the Organic Law on the National Bank of Georgia stipulates that the main goal of the National Bank is to ensure price stability, and in order to achieve this goal, the National Bank also aims to stabilize the national exchange rate and economy, and hence reduce unemployment Accordingly, the National Bank of Georgia has selected a monetary policy regime - inflation targeting or pre-determination of inflation targeting and the National Bank to take appropriate measures to regulate it. The change in the refinancing rate in Georgia during the pandemic period was dictated by the assessment of the current state of the economy. A significant failure in this regard is still related to the beginning of the pandemic period. Our country’s economy has faced significant constraints at a tighter refinancing rate, which has instantly further exacerbated the pandemic-induced recession. At the same time, the change in the refinancing rate should affect the economy, according to the National Bank, in 4-6 quarters, while the rate has changed five times in the last two years. It is important that the transmission mechanism caused by the rate change is fully realized in the economy. The fact is that a change in the refinancing rate can not be a guarantee of catching inflation and ensuring targeted inflation. Along with it, it is important to stimulate the joint demand, which should activate the reproductive processes in the economy. This should be a key factor and the refinancing rate in such a situation should be an auxiliary link. While the real rate of inflation cannot be fully determined, it is impossible for the economy to have a compatible refinancing rate that fully reflects the needs of the country's economy.
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