National Bank reduces refinancing rate to 8% in light of “low-inflation environment”

The National Bank of Georgia on Wednesday decided to reduce the refinancing rate by 0.25 percentage points, to eight percent, in light of the “low-inflation environment” in the domestic economy.

The body said the overall price level increased by 1.5 percent annually last month, while core inflation stood at 2.3 percent. It added there had been a slight increase in the inflation rate due to “globally increased oil prices” caused by “acute geopolitical tensions”.

Timely and sufficiently tight monetary policy stance has successfully normalised the inflation of domestically produced goods around the target. Inflation is expected to remain below the target of three percent in the first half of 2024, while stabilising close to it in the medium term”, the NBG said.

The body noted despite the “positive trends”, “overall uncertainty” had increased, and inflationary pressures had risen due to both domestic and geopolitical developments.

Inflation expectation measures have seen a slight increase. Additionally, the NBG estimates that the gap between economic activity and its pre-pandemic trend has fully closed. As a result, higher-than-expected demand can also trigger inflationary risks. This strong demand is partly driven by increased credit activity”, it noted.

However, according to the baseline scenario, economic activity would stabilise around its potential level, with real growth reaching 5.6 percent. In this case, demand-side inflationary risks would not materialise”, the institution added.

The Bank said it would continue to normalise the monetary policy rate “gradually and cautiously”, and would use “all available tools” to ensure price stability.