The National Bank of Georgia on Wednesday said it was continuing its exit from a tight monetary policy by reducing the refinancing rate by 0.5 percentage points, down to nine percent, due to “low inflation environment”.

Inflation is expected to remain below the target of three percent at the beginning of 2024, while stabilising close to the target in the medium term, the Bank said.

The latest inflation data by the National Statistics Office of Georgia showed the consumer price index increased by 0.1 percent in December compared to the previous month, while the annual inflation rate amounted to 0.4 percent.

The central bank noted the “low” inflation was a result of both domestic and external factors, including the tight monetary policy and lower inflation expectations that it said had led inflation of domestically produced goods on a downward trajectory.

It added price pressures stemming from external shocks - the Russia-Ukraine war and the Covid-19 pandemic - had “significantly diminished”, contributing to a lower overall inflation rate. 

The Bank also mentioned domestic economic activity in the past year had made an impact on the inflation rate as well. It projected economic activity in 2024 would “gradually normalise” in line with the growth rate of potential gross domestic product, estimated at five percent. 

The body noted the granting of the European Union membership candidate status for Georgia in December had “visibly reduced” the sovereign risk premium, which, with all else being equal, could result in a lower neutral policy rate. 

However, the Bank also indicated inflationary risks caused by the ongoing “acute geopolitical environment” that was creating uncertainty in shipping costs. 

The National Bank said it “remained vigilant” in monitoring economic trends and financial markets, and would implement “all available instruments” to “ensure stability of prices”.

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