The National Bank of Georgia (NBG) decided to keep the key refinancing rate unchanged at 8.25% following a June 17 meeting of its Monetary Policy Committee (MPC). The Bank said it expects inflation to average 4.9% in 2026 and gradually return to its target level over the medium term.
The NBG noted that annual inflation stood at 5.7% in May, attributing it to the “significant increase in energy resources prices.” According to the central bank, “inflationary pressures mainly reflect external factors, including elevated volatility in international energy prices and supply-side disruptions.”
It said that “measures of relatively sticky prices” have recently shown “a slight acceleration,” noting that core inflation, which excludes food, energy, and tobacco, stood at 3.5% in May, while services inflation reached 3.8%. Although both indicators remain below headline inflation, the NBG said their recent dynamics “continue to point to risks of strengthening second-round effects.”
Commenting on the conflict in the Middle East, the central bank said that “amid growing optimism regarding the prospect of a peace agreement between the US and Iran, international oil prices have declined significantly from their peak levels.” The NBG said this development is consistent with its central scenario, which had assumed that “strong pressure on inflation caused by the external shock would occur in the second quarter of this year, after which its impact would gradually ease.”
“Therefore, according to the central scenario, inflation will continue its downward tendency from the second quarter of 2026 and will average 4.9 percent in 2026, and will gradually return to the target in the medium term,” the Bank said.
The Central Bank also pointed to the fact that the country’s “economic activity remains strong,” citing that real gross domestic product (GDP) grew by 6.2% in April. It also noted that “high-productive sectors remain a key driver of economic growth, partially offsetting demand-side inflationary pressures.”
The MPC also outlined two alternative scenarios that could shape future monetary policy decisions, citing “the ongoing conflict in the Middle East, developments in international energy prices, and the timeline for the restoration of damaged infrastructure.”
Under a high-inflation scenario, the Bank assumes a prolonged “geopolitical tension,” which would result in “additional damage to infrastructure,” delay in the recovery process, further increases in international commodity prices, and broader supply-chain disruptions. “As a result, the supply-side inflationary shock would amplify in Georgia, strengthening second-round effects, and ultimately inflation would be higher than in the central scenario,” the Bank noted.
Under a low-inflation scenario, the NBG assumes that a peace agreement in the Middle East would rapidly stabilize international commodity markets and ease pressure on energy prices, resulting in lower domestic inflation. In case the U.S. dollar continues to weaken in global markets, “imported goods inflation is likely to be lower than expected, and, as a result, headline inflation will converge to the target more rapidly than in the central scenario.”
The Bank noted that “as a result of the ongoing macroeconomic analysis and consideration of existing risks, the MPC considered it appropriate to keep the monetary policy rate unchanged at 8.25 percent,” adding that “if inflationary shocks stemming from geopolitical tensions become even more prolonged and/or their magnitude would amplify the risks of second-round effects, the MPC will continue to moderately increase the monetary policy rate.”
The next Monetary Policy Committee meeting is scheduled for July 29, 2026.
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