Central bank to stick to “tight monetary policy” to keep inflation under control
The NBG made the statement following the decision of its Monetary Policy Committee to keep the refinancing rate unchanged at 11 percent. Photo: Nino Alavidze/Agenda.ge
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While annual inflation in Georgia has “passed the peak” and is on a downward trend, the country’s National Bank will pursue a “tight monetary policy” throughout the year to “reduce the risk of rising inflationary expectations” in the medium term, the Bank announced on Wednesday.
The NBG made the statement following the decision of its Monetary Policy Committee to keep the refinancing rate unchanged at 11 percent.
"Given a tight monetary policy, the annual inflation will continue to decline and approach the target level in the second half of 2023", the Bank explained and said a "gradual neutralisation" of the external factors had led to the downward inflationary trend in the country.
The international food price index has been decreasing since March last year. At the same time, international shipping costs continue to decline and, as of December 2022, had fallen almost to the pre-pandemic level. These trends, against the backdrop of a stronger exchange rate, are being transmitted to the local market and reducing imported inflation", the NBG said.
The body said despite the slowdown, statistics showed inflation was “still above the target” at its December level of 9.8 percent, and warned about risks of inflation.
Due to the current geopolitical situation, uncertainty is still high, and existing risks for inflation are mainly on the upside [...] On the other hand, against the backdrop of inflationary shocks, local wage growth has recently exceeded the growth rate of labour productivity, which makes the inflationary pressure from the labour market noteworthy", the NBG said.
The Bank also said easing the monetary policy was to be expected only once actual inflation approached the target level.
On the other hand, it added “it may be necessary to further tighten monetary policy or maintain the current tight stance for a longer period” if an “upside pressure on inflation expectations” became “considerable” again.