The Parliament approved the main directions of the monetary policy of the National Bank of Georgia for 2022-2024

The Parliament of Georgia voted and approved the draft resolution "On the main directions of monetary and foreign exchange policy for 2022-2024", which was submitted to the legislative body by the President of the National Bank, Koba Gvenetadze.

In accordance with the Organic Law on the National Bank, the President of the National Bank presented to the Parliament of Georgia a draft of the main directions of monetary and foreign exchange policy for the next three years, which reflects the inflation target of the main monetary policy, instruments used by the National Bank to achieve inflation target.

“In the context of inflation targeting, the inflation target is achieved by changing the main instrument of the National Bank's monetary policy - the short-term interest rate (refinancing rate). The decision to change the discount rate is made on the basis of an analysis of the macroeconomic environment, analysis of the situation in financial markets, forecasting inflation dynamics, macroeconomic risks for inflation and an assessment of inflation expectations. If the inflation forecast exceeds the target, policy will be tightened, and vice versa, if the inflation forecast is below the target, monetary policy will be relaxed. We remind you that the National Bank has been implementing the inflation targeting regime since 2009 for 12 years. During this period, the inflation target was initially 6%, then gradually declined to an average of 4.7%, while the average actual inflation was 4.3%. Considering Georgia's economic development and regional problems, this is a good indicator. From 2018 to today, when the inflation target was lowered to 3%, average inflation rose to 5.4%, largely due to the pandemic. “This big picture clearly shows that inflation targeting works well in the medium to long term and contributes to the process of price stabilization in the short term without additional economic costs and fluctuations in economic activity,” he said.

According to Koba Gvenetadze, inflation in 2021 will remain above the target. Inflation in November was 12.5 percent. The reason for the increase in inflationary pressure is the emergency created by the coronavirus, as well as further recovery processes. According to the NBG President, various factors simultaneously influenced the growth of inflation, including the rise in prices for consumer goods in the world. “Rising food prices - pandemic delays, low harvests and rising transportation costs have driven global food prices to a record high in a decade. The rise in food prices has particularly affected developing countries, where the share of food in the consumer basket is high compared to developed countries. The share of products in the consumer basket of Georgia is high and amounts to 29%. Therefore, the change in food prices has a significant impact on inflation, ”said Koba Gvenetadze.

The President of the National Bank noted that inflation will begin to decline in 2022 and will gradually approach the medium-term target. According to Koba Gvenetadze, the expected dynamics of inflation and interest rates largely depends on how the epidemiological situation will continue both in Georgia and throughout the world. “Vaccines are available and the vaccination process is active, but the spread of new strains of the virus remains a significant risk. Against this backdrop, the pace of full recovery of global mobility and the timing of the end of the pandemic are unclear. Consequently, macroeconomic forecasts are characterized by particular uncertainty. The prognosis largely depends on the duration of the pandemic and the rate of vaccination. “Such risks are of an inflationary nature, and we continue to adhere to a tight monetary policy,” said the President of the National Bank of Georgia.

After the report, the President of the National Bank of Georgia answered the questions of the parliamentarians.