The National Bank expects inflation to normalise in the near future, approaching 3% from next year, whilst averaging 4.0% this year, according to the updated macroeconomic forecasts announced by Natia Turnava, President of the National Bank of Georgia (NBG), whilst presenting the draft Monetary and Foreign Exchange Policy Guidelines for 2026-2028 to Parliament’s Finance and Budget Committee.

In her address to the committee, Natia Turnava focused on the comparatively elevated annual inflation rate and its determining factors.

According to Turnava, the increase in inflation, relative to the 3% target, is mainly driven by food prices. This is partly due to the low base effect from last year and external factors. However, excluding food, the inflation indicator, together with relatively stable price measures that accurately reflect long-term inflation expectations, remains close to the target level.

As Turnava explained, since inflation over the past two years was three times lower than the 3% target, at just 1.1%, this year, despite the low base, inflation has surpassed the 3% threshold. Natia Turnava highlighted that several external factors contributed to this, including price increases across various commodity categories on international markets. However, she emphasised that these are one-off factors, and their impact is expected to diminish in the coming months.

“According to the current central scenario, inflation will temporarily remain above the 3% indicator and average 4.0% in 2025. However, in the medium term, with tight monetary policy, normalisation of aggregate demand, and the dissipation of inflationary effects from food prices, inflation will stabilise around the target,” Turnava stated.

Moreover, according to Natia Turnava, inflation expectations have not increased either, as the 5.2% indicator primarily stems from supply-side factors rather than demand pressure. Natia Turnava noted that in such circumstances, central banks tend to react less, though the National Bank stands ready to increase the refinancing rate if these processes continue.

“Our neutral rate is 7%. Today, we have it at 8%, and, according to the central scenario, this stance is expected to persist unless unforeseen circumstances arise. We continue to maintain a relatively tight position. As you may recall, 8% is notably higher than the neutral level, and we remain vigilant,” noted Natia Turnava.

“In the near future, we expect inflation to come down. Accordingly, we have great hope that we will not need to increase the refinancing rate. On the contrary, there is a tendency that we will approach a 7% refinancing rate,” the President of the National Bank added.

“We are obliged to maintain the correct balance between interest rates and inflation, though inflation and price levels are the primary concern. At this stage, our expectation according to the central scenario is precisely this: this year around 4%, next year it will begin approaching 3%,” Natia Turnava emphasised.