Georgia: Central bank keeps rates unchanged amid rising geopolitical risks

CAUCASUS / CENTRAL ASIA - In Brief 25 Oct 2023 by Ivan Tchakarov

---

The National Bank of Georgia kept the refinancing rate at 10.0 percent citing newly emerging geopolitical risks. The NBG transitioned to an easing mode in May and cut the policy rates from the peak of 11 percent in three steps (50bpts in May and twice by 25bpts in Jul and Sep). While the accompanying statement recognizes the still subdued inflation risks, with the current pace of price growth running at 0.7 percent YoY vs the 3.0 percent CPI target, it also lays a particular stress on the heightened uncertainty in the Middle East and the less stable global economic backdrop. Critically, the central bank has also argued that it “will continue to normalize the policy rate only at a moderate pace”, which is, in our view, a slightly more hawkish message relative to the language used in previous statements that the NBG will pursue a “gradual exit from its tight monetary policy stance”. There are indeed signs that the bottom of price growth has passed, which warrants this cautious approach to monetary policy making. Inflation had been falling since Jan 2022 when it had peaked at 13.9 percent YoY. Momentum has been gradually losing steam in subsequent months as the reversal of global food price growth was enhanced domestically by a fast-appreciating currency. As a result, headline inflation collapsed to only 0.3 percent YoY as of July 2023, although it inched up to a still modest 0.9 percent in Aug and 0.7 percent in Sep. However, while headline inflation has been well-behaved in recent months, running below the 3.0% CPI target, higher energy prices and lari’s recent depreciation will now start to provide tailwinds to price growth. Moreover, we have already seen a reversal in...