Georgia: Central bank cuts policy rate by 50bpts to 9.5 percent

CAUCASUS / CENTRAL ASIA - In Brief 20 Dec 2023 by Ivan Tchakarov

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The National Bank of Georgia decreased the refinancing rate by 50bpts to 9.50 percent. There was some uncertainty about the decision given the message that the central bank sent at the previous policy meeting in Oct when it specifically referred to elevated geopolitical risk in the region as the primary factor in opting to keep the refinancing rate unchanged at 10.0 percent. At the same time, the decision to resume easing was in line with the Georgian views we expressed in our 2024 CCA Outlook. The accompany statement has now moved slightly into a dovish direction by removing the reference to enhanced geopolitical concerns. These concerns, while specifically not detailed, we in our view linked to the aftermaths of the 3rd Karabakh war and the tension between Armenia and Azerbaijan, and the more volatile backdrop in the Middle East. This obstacle to easing has now been eliminated from the policy statement, thus paving the way to resuming interest rate cuts. The central bank also pointed to the more pronounced decline in inflation in November against the balancing factor of GDP growth continuing to expand at a robust pace. In essence, the central bank struck a broadly balanced view on the underlying macroeconomic conditions in the country while removing the geopolitical consideration from the set of factors affecting its decision. Finally, monetary authorities maintained the key policy line that the process of easing will continue in the future in a gradual fashion. We read this overall message as somewhat more dovish relative to the previous one in Oct. Inflation will be well-behaved in 2024, averaging 3.4 percent from 2.8 percent this year. Inflation has been falling s...