Posted: 11 months ago

NBG Forecasts a Drop in Refinancing Rate to 9.5% Amidst Inflationary Risks and Geopolitical Challenges

Despite the potential threats of external factors, the financial stability of the nation does not seem compromised by any internal elements, according to the acting president of National Bank of Georgia, Natia Turnava.

She made this statement during a briefing that followed the Monetary Policy Committee (MPC) meeting, indicating that only outside influences pose significant risks.

Turnava highlighted the intensity of the current geopolitical landscape, pointing out its heightened escalation. She warned of potential economic implications as the effects of global unrest might ripple into foreign markets. These alterations could also influence the national economy, given its considerable dependence on imports.

However, Turnava also acknowledged certain inflationary risks within the local economy. She stated that a surge in market demand could exert pressure on inflation rates. Provided these risks do not manifest, the NBG will persist in moderating its monetary policy.

NBG's economic growth forecast exceeds 6%, with an inflation rate of 0.6%. Domestic inflation is currently at 8.5%, exhibiting a downward trend. The service sector's slower rate of decline is a contributing factor. Turnava made particular mention of the escalated cost of services, including those in the tourism sector. Conversely, other domestic inflation components, such as rent, show a promising decline, decreasing to 0.9%.

In terms of the financial sector, risks have been minimized to the fullest extent possible. Nevertheless, challenges persist due to geopolitical instability and dollarization. Turnava assured that NBG maintains diligent oversight of the real estate market, ready to neutralize potential risks in a timely manner. She cautioned against the risk of economic overheating due to high growth. As NBG elucidated, threats from the supply side are minimal, but there is potential risk associated with a reduction in demand after peak levels are reached.

The MPC meeting held on Wednesday was a notable one for Turnava as she chaired the meeting for the first time in her capacity as the acting president of the NBG. The committee made a significant decision to reduce the refinancing rate by a quarter point, bringing it down to 10.25%.

Before concluding her briefing, Turnava communicated NBG's projection to further decrease the interest rate to 9.5% by the end of the year.