National Bank of Georgia publishes Monetary Policy Report, February 2020
By Nika Gamtsemlidze
Thursday, February 6
Monetary Policy Report is the main instrument for communicating monetary policy and is published quarterly.
The report contains an inflation forecast, anticipated path of the future policy rate and it also gives a detailed description of factors that influence the monetary policy decisions.
According to the report, the level of annual inflation in the fourth quarter of 2019 exceeded the previous forecast by 0.5 percentage points and averaged at 7%. Even though high inflation in 2019 was partly due to higher-than-expected prices on tobacco products and certain components of the food category, the inflationary pressure, coming from the depreciation of the local currency was also notable. Also, the revised data of economic growth indicates stronger domestic demand, which led to the upward revision of the inflation forecast and the subsequent monetary policy response.
According to the National Bank of Georgia’s (NBG) forecast, inflation will remain above the target in the next three quarters.Subsequently, at the end of 2020, after a gradual decline in the medium-term lowers, the inflation rate will approach the below-target rate. This will be driven by the tightened monetary policy, which is ready to temporarily accommodate lower-than-target inflation in order to ensure that long-run inflation expectations decline back to the target level.
As for future dynamics, the NBG’s forecast of GDP growth for 2020 increased to 5%, from 4.5% (see Figure 2). Despite tight monetary policy (which is itself a response to higher inflation and stronger demand), the factors driving aggregate demand remain strong. Current estimates suggest that on the back of positive trends in the trade balance, net exports as well as a revival of domestic demand and investment related to fiscal stimulus and credit growth, will all make a positive contribution to growth in 2020.
The monetary policy rate forecast is not a commitment to future decisions made by the National Bank of Georgia. Rather, it is the expected trajectory of the policy rate assuming that all exogenous factors incorporated into the forecast materialize as expected.
If external and/or domestic factors evolve differently than currently expected, it may influence macroeconomic variables and, consequently, affect future decisions made by the National Bank of Georgia.