On March 30, 2022, the Monetary Policy Committee (MPC) of the National Bank of Georgia (NBD) Wednesday has decided to increase the refinancing rate by 0.5 pp. The monetary policy rate is 11.0 percent.
According to the NBG readout, the recent developments, in particular Russia’s invasion of Ukraine and the resulting full-scale war, have posed new challenges to the world economy that was still in the phase of post-pandemic recovery.
It continued: The intensified inflationary risks amid a new shock have on a world scale slowed the projected pace of decline of already high global inflation. Georgia had an annual inflation rate of 13.7 percent in February. Reduction of inflation is expected from March, mainly related to the elimination of the base effect of subsidy of utility bills. However, without the new shock, this reduction would have been much larger.
“The sanctions imposed on Russia due to military actions and supply-side disruptions have significantly increased the prices of a number of product categories on the world markets. First of all, against the background of increasing oil prices, there is a sharp rise in fuel prices, which is expected to have a significant impact on inflation. This fact, combined with high inflation for a protracted period, may translate into higher inflation expectations. In addition, amidst rising risks of lower external inflows, volatility in foreign exchange markets has increased, leading to additional risks in terms of inflation expectations. According to the current forecast, other things being equal, inflation will start declining from March, although will remain above the target during the year.
Due to the increased risks of high inflation expectations, the gradual increase of the monetary policy rate over the past year led to the tight monetary policy. However, in the face of even more intensified inflation risks and inflation being above the target for a long time, the Monetary Policy Committee considered it appropriate to increase the policy rate by 0.5 percentage points. Monetary policy will keep a tightening bias until the risks of rising inflation expectations are sufficiently mitigated,” the statement reads.
The next meeting of the Monetary Policy Committee will be held on May 11, 2022.