On October 27, 2021, the Monetary Policy Committee (MPC)
of the National Bank of Georgia decided to keep the refinancing rate unchanged.
The monetary policy rate is 10.0 percent.
The world economy has faced many challenges due to the pandemic. One of the important factors in this regard is the accelerated pace of price increases, which remains a recent concern in both developed and developing countries. Increased inflation is also a challenge for Georgia. Annual inflation stood at 12.3 percent in September. High inflation is mainly due to one-off factors, which became evident globally in 2020-2021. According to preliminary estimates, the contribution of these exogenous factors to headline inflation is about 8 percentage points. In this regard, a significant increases in USD prices of food items and a rise in oil prices, that accelerated even further recently, on the international markets are particularly noteworthy. The rapid growth of international transportation costs is also adding up to the pressure.
As for aggregate demand, according to the updated forecast, real GDP growth of 10 percent is expected in 2021, which is mainly due to still sizeable fiscal stimulus, pent-up demand and a high growth rate of lending. In the increased crediting the higher contribution of foreign currency loans is particularly noteworthy, against the backdrop of increased funding costs of lari. Strong credit activity is a boost to current economic activity, however, at the same time, it hinders the reduction of inflation.
Inflation will remain high for the rest of the year. In December 2021 and January-February 2022, the base effect of the utility fee subsidy program will have an additional upward impact on the annual inflation. According to the current forecast, other things equal, inflation will decline starting from spring 2022. Along with the fading-out of temporary factors, this will be facilitated by tight monetary policy and fiscal consolidation. Given that the contribution of temporary factors to inflation will continue to be a driving force and, at the same time, monetary policy stance is tight, the Committee decided to keep the policy rate at the current level. Nevertheless, in the face of strong supply shocks, the threat of inflation expectations accelerating is still relevant. In addition, inflationary risks persist and the materialization may warrant further tightening of monetary policy.
A gradual re-opening of the economy had a positive effect on Georgia's foreign trade turnover as well. According to the preliminary data, exports of goods in January-September increased by 24 percent annualy and is about 9 percent higher compared to the same period in 2019. Revenues from international travelers increased by 73 percent year-on-year in the first nine months, though the decline is 66 percent compared to the same period in 2019. Imports also increased, against the backdrop of higher domestic demand, and in January-September it grew by 22 percent, whereas compared to 2019 the growth is about 3 percent.
The NBG continuously monitors the developments in the economy and financial markets and will use all available tools to ensure price stability.
The next meeting of the MPC will be held on December 8, 2021.