National Bank of Georgia keeps refinancing rate at 8% amid law inflation

The National Bank of Georgia on Wednesday decided to maintain the refinancing rate at eight percent, reflecting the country’s ongoing “low-inflation” environment.

Since the beginning of 2023, inflation rates have remained “consistently below the target” of three percent, the Bank said, adding headline inflation had been recorded at just 0.6 percent in September, with core inflation slightly higher at 0.8 percent.

The price stability is largely credited to the NBG’s effective monetary policies, which involved timely adjustments followed by a gradual normalisation process, successfully stabilising long-term inflation expectations”, the Bank said.

Domestic inflation, which closely mirrors these expectations, has also remained under the three percent target, it added, saying  increased competition” within the economy had led to reduced profit margins for firms, further contributing to  the low inflation rates. The central bank said these factors collectively had neutralised potential inflationary pressures stemming from strong demand.

Economic growth in Georgia has surpassed initial forecasts this year, prompting a revised growth estimate of 8.5 percent. The NBG noted the economy’s overall production potential had increased, alleviating price pressures and contributing to the sustained low-inflation scenario. Looking ahead, the NBG projects inflation to hover around 1.2 percent this year, stabilising near the three percent target in the medium term.

Despite the positive indicators, the Bank cautioned “heightened uncertainty” - both domestically and internationally - remained a concern.

Ongoing hostilities in Ukraine and escalating geopolitical tensions in the Middle East could lead to a rise in regional risk premiums, potentially exerting price pressures. Additionally, the fluctuating costs of international oil and food, along with developments in the Red Sea region, may increase shipping expenses and risks associated with imported goods”, the central bank said.

With domestic economic activity showing strength, the NBG said there was also a possibility of future upward pressure on prices. The central bank emphasised the importance of a cautious approach to monetary policy normalisation in order to keep inflation near its target in the medium term.

The next meeting of the Monetary Policy Committee is scheduled for December 18, where further evaluations of economic conditions and price stability measures will be discussed.