The Monetary Policy Committee of the National Bank of Georgia (NBG) resolved on February 1 to keep the monetary policy rate (the refinancing rate) unchanged at 11.0 per cent.
According to NBG President Koba Gvenetadze, annual inflation has passed its peak and is slowing down.
“The positive trends in foreign markets provide a foundation for cautious optimism; but, due to the present geopolitical environment, uncertainty remains high, and the existing risks to inflation are mostly in the direction of growth. At the same time, despite the decline, inflation remains over the target rate, standing at 9.8 per cent in December. Inflation has deviated from its target rate for a long period as a result of consecutive shocks, which strengthens inflationary expectations. On the other hand, in the wake of inflationary pressures, wages in the local labour market have recently grown faster than productivity, making labour-market inflationary pressures noteworthy.
Given the current level of uncertainty and inflationary risks, the National Bank remains committed to lowering inflation. According to the current prediction, the National Bank of Georgia will maintain a strict monetary policy throughout the year to avoid further pressure and limit the risk of inflation expectations in the medium term.
Against the backdrop of strict policies, particularly the impact of recent macro-prudential instruments, credit activity growth has slowed, and this dynamic is projected to continue.
Furthermore, with zero interest charged on reserve requirements of funds raised in US dollars and euros, the tightening of global financial conditions amplifies the effect of Georgia’s restrictive policy on foreign currency lending.
Policy easing is expected when actual inflation approaches the target rate, which should prevent long-term expectations from deteriorating. It may be necessary to tighten monetary policy or maintain the current strict policy for a longer period in the event inflation expectations are again influenced by the variables that have an impact on growth,” the NBG said.
The National Bank of Georgia continually analyses current economic processes and financial markets and will employ all available measures to maintain price stability.
The next meeting of the Monetary Policy Committee will be held on March 29, 2023.