Georgian Central Bank Cuts Key Rate, Citing War

By Helena Bedwell

Aug. 20 (Bloomberg) -- The National Bank of Georgia cut its benchmark interest rate by 1 percentage point to 11 percent to promote economic growth and increase liquidity following fighting with Russia.

``Due to the current war situation and possible decline of economic activities it is appropriate to loosen monetary policy,'' the bank said in a statement released today in Tbilisi.

Russia sent troops into Georgia on Aug. 8 after a day of fighting between Georgia and the separatist region of South Ossetia. Russian soldiers occupy about a third of the country. Shipments of oil through Georgia, a key transit point for Caspian crude, have been cut because of the fighting.

The bank had raised its benchmark one-week certificate of deposit rate by a total of 5 percentage points since November in an effort to slow inflation. The inflation rate has declined for the past four months, reaching 9.8 percent in July from 12.3 percent in March.

``The banking system has shown resilience during the crisis,'' the statement said, adding that the ``investment climate may experience less capital inflows by the end of this year.''

BP Plc, Azerbaijan's national oil company and other exporters halted crude and product exports by rail through Georgia to the Black Sea after a bridge was blown up near the village of Grakali on Aug. 16.

An ``alternative bridge is fixed, however Russian troops blocked the railways near the city of Khashuri,'' about 100 kilometers (60 miles) from Tbilisi, Vako Kavzharadze, an agent at shipper TeRo Co. Ltd. in the Georgian port of Batumi, said today in an e-mailed statement.

He said Georgian Black Sea ports are running out of oil.

Anatoly Nogovitsyn, deputy chief of Russia's General Staff, denied the military's involvement in blocking railways and attacking the bridge.

``Why would we block a railway? We haven't done that,''

The bank's monetary policy committee is scheduled to meet again on Sept. 17, the bank's statement said.

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