The International Monetary Fund (IMF) published its Regional Economic Outlook for the Middle East and Central Asia at yesterday’s hybrid event, organized by the International Monetary Fund and the National Bank of Kazakhstan. According to the National Bank of Georgia (NBG), the survey addresses the impact of the major economic challenges facing the region and reviews the key priorities that will help countries cope with them.
NBG Head Attends IMF Event Over Regional Issues
By Khatia Bzhalava
Friday, May 20, 2022
Koba Gvenetadze, Governor of the National Bank of Georgia, participated in the meeting and spoke with the participants about the survey. As NBG notes, Gvenetadze discussed the economic challenges facing the region and focused on inflation and the impact of the normalization of US monetary policy.
According to him, the new reality has caused an upward revision of the pre-war forecasts for inflation. He stressed that the consequences of war in Ukraine fuel inflationary expectations and “exacerbate an already great inflationary environment” caused by the pandemic. As he noted, due to the worsened imbalances in the global supply and demand, fuel and food prices in the international commodity markets have risen sharply, which has already been reflected in rising consumer prices in Georgia.
He also focused on increasing oil prices and stressed that the higher prices are going to impact inflation in those countries, where energy subsidies are not provided, including Georgia. According to Gvenetadze, for that reason, Georgia saw a large increase in domestic energy prices. As for gas prices, he noted that due to the short-term bilateral agreement between Georgia and Azerbaijan, the impact on inflation will be less severe.
“Monetary policy tightening in advanced economies, in response to high inflation, is also expected to have negative consequences for capital inflows, investments, and bond yields, putting pressure on local currencies in the region, prompting hikes in interest rates and slowing the pace of recovery in these economies,” Gvenetadze said.
NBG governor said that given the importance of the price stability, the NBG has decided to tighten monetary policy, even if that means tighter conditions or more expensive credit for domestic agents.
Gvenetadze also stressed that when there was pressure observed on the exchange rate or national currency after the war, the NBG recalibrated some macroprudential regulations “to make sure that we preemptively address the issue of increasing dollarization in Georgia.”