The National Bank of Georgia (NBG) has reduced its key refinancing rate by 0.25 percentage points to 10% on Wednesday, citing a downward trajectory of inflation. The decision was made by the Monetary Policy Committee, which noted that the annual inflation rate is expected to further decline and stabilize at around 3% in the months after 2023.
The NBG’s move comes amid a backdrop of lower prices for food and raw materials, along with a drop in international shipping costs to almost pre-pandemic levels, which have eased inflationary pressures. Furthermore, a stronger GEL exchange rate has lowered the price of imported goods in Georgia. The country’s annual inflation was at 0.9% in August, with local inflation standing at 6.1%, albeit declining at a slow pace.
Despite these positive trends, the NBG has expressed caution due to high uncertainty stemming from the geopolitical situation. It noted that domestic economic developments, such as the acceleration of foreign currency lending, remain noteworthy and could potentially lead to additional inflationary pressures in the future.
In response to these dynamics and forecasts from previous meetings, the NBG has initiated a gradual exit from its tight monetary policy stance. This will involve reducing the refinancing rate at a moderate pace. The bank has assured that it will continue to monitor developments in the economy and financial markets, using all available instruments to ensure price stability.
In contrast, on August 16, 2023, the Federal Reserve expressed concerns over the pace of inflation and suggested that future rate hikes could be necessary if conditions do not change. The federal funds target rate currently stands between 5.25 and 5.50 percent, marking its highest level in over twenty-two years.
The central banks’ differing approaches highlight the distinct challenges each faces in maintaining economic stability. While Georgia’s central bank is easing its monetary policy amid declining inflation, the Federal Reserve is contemplating tightening measures to combat rising inflation.
The next meeting of the Monetary Policy Committee of the National Bank of Georgia is scheduled for October 25, 2023.
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