The National Bank of Georgia (NBG) decided on Wednesday to increase the refinancing rate by 0.5 percentage points to 11% during its monetary policy committee (MPC).
Heightened risks of elevated inflation expectations and above-target inflation for an extended period were cited as reasons for raising the rate, with the BNG noting that the MPC would maintain a “tightening bias until the risks of rising inflation expectations are sufficiently mitigated. .”
The central bank also said the ongoing war in Ukraine and the sanctions imposed on Russia had led to high global inflation, raising the prices of a number of product categories in world markets.
He further noted that the “sharp rise” in fuel prices is expected to have a “significant impact” on inflation by translating into higher inflation expectations. The Bank added that the trend would start to decline from March but would remain above target over the course of the year.
The annual inflation rate in February was 13.7%.
The NBG said it was “continuously monitoring” developments in the economy and financial markets and would use “all available tools to ensure price stability”.
Credit activity is expected to be moderately strong over the course of the year, despite monetary policy tightening and recent macroprudential measures,” the Bank noted.
The NBG also cut its expectations for Georgia’s economic growth in 2022 from 5% to 3-4%.
In the context of the expected slowdown in economic growth, inflationary pressure resulting from aggregate demand will be weak and supply-side factors will remain dominant throughout the year,” the Bank stressed.
In 2021, Georgia’s real gross domestic product growth increased by 10.4%, while in January this year the increase was 18% year-on-year.
The next meeting of the MPC will take place on May 11.