The National Bank of Georgia (NBG) decided to keep the key refinancing rate unchanged at 8.25% following a September 9 meeting of its Monetary Policy Committee (MPC). The Central Bank expects inflation to average 5.2% in 2026 before gradually converging with its 3% target over the medium term.
Noting that annual inflation stood at 5.6% in August, it attributed the deviation from its target to “supply-side shocks,” including rising energy prices, as “renewed geopolitical tensions” in the Middle East have increased “uncertainty” surrounding energy supplies and “heightened volatility in international prices.” It also noted that “inflationary pressures stemming from international food markets have intensified.”
While saying that core inflation was 3.6%, and services inflation amounted to 4.4%, it noted that such developments suggest that, despite the supply shock, “its impact on inflation expectations remains moderate,” though cautioning that “a prolonged shock increases the risk of its transmission to inflation expectations, making second-round effects an important factor to monitor.”
According to the NBG’s assessment, “recent inflation dynamics remain broadly in line with the central forecast,” and under its central scenario, “average annual inflation is projected at around 5.2% in 2026, before gradually converging to the 3% target over the medium term.”
It also said that Georgia’s “economic activity remains strong,” citing 8% economic growth in July and noting that “high-productivity sectors continue to make a significant contribution to economic growth, partly offsetting inflationary pressures stemming from strong aggregate demand.”
As uncertainty surrounding the evolution of geopolitical tensions and their economic impact “remains high,” the MPC considered both high- and low-inflation risk scenarios in making its decision.
Under the high-inflation scenario, the NBG assumes that “a prolonged period of heightened geopolitical tensions,” coupled with “an increase in international food prices due to adverse climate conditions,” would affect inflation expectations and “amplify second-round effects.” In such a scenario, the Bank said, “inflation would be higher,” requiring “a tighter monetary policy stance.”
Under its lower-inflation scenario, the NBG said “structural changes in the economy” have increased the contribution of higher-productivity and less import-intensive sectors, strengthening productive capacity and improving Georgia’s “external position.” If these trends persist, the bank said, “stronger productive capacity would moderate demand-driven inflationary pressures,” while an improved external position and lower sovereign risk premium “would support a stronger fundamental exchange rate.” In that case, “headline inflation would converge to the target faster.”
“Taking into account the current macroeconomic environment and prevailing risks,” the MPC therefore decided to keep the monetary policy rate at 8.25%. It added that if “prolonged supply-side shocks lead to an upward trend in inflation expectations” and amplify second-round effects, “the MPC will continue to increase the monetary policy rate moderately.”
The next Monetary Policy Committee meeting is scheduled for October 21, 2026.
Also Read:
This post is also available in:
