NBG Decided to Keep the Monetary Policy Rate Unchanged at 8.25%
In June 2026, headline inflation in Georgia stood at 5.8 percent.
Inflation above the target level is still primarily driven by higher
energy prices. Amid the renewed escalation of geopolitical tensions in
the Middle East, volatility in international oil prices has increased
again. However, current market trends indicate that oil prices remain
below the levels observed during the previous escalation. At the same
time, the prolonged conflict has heightened the risk of indirect
inflationary effects stemming from higher energy prices. The sticky
inflation indicator, which better captures underlying inflationary
dynamics and inflation expectations, has remained close to the target.
Specifically, in June, core inflation (excluding food, energy, and
tobacco) stood at 3.2 percent. However, service sector inflation
accelerated to 4.1 percent, indicating that despite the moderate level
of core inflation, the risks of strengthening second-round effects
remain a noteworthy factor.According to the NBG's updated central
scenario, energy prices are expected to remain a significant
contributor to inflation this year. Consequently, average inflation is
projected at 5.2 percent in 2026. From the second half of 2026
onwards, inflation is expected to decline gradually and converge to
the 3 percent target over the medium term.Economic activity has
remained resilient in the face of external shocks. In May 2026, based
on the preliminary data, economic growth stood at 6.4 percent, while
average growth for the first five months of the year reached 7.8
percent. Growth continues to be driven primarily by high-productivity,
service-oriented sectors, which mitigates demand-side inflationary
pressures. At the same time, in line with expectations, the adverse
impact of the ongoing conflict in the Middle East on external demand
has remained limited. Accordingly, under the updated central scenario,
the forecast for Georgia's economic growth in 2026 remains unchanged
at 6.5 percent.The geopolitical situation and its economic
consequences remain one of the main risks shaping the outlook for the
global economy. Against the backdrop of heightened uncertainty, in
addition to the central scenario, the MPC considered both
high-inflation and low-inflation risk scenarios.In the event of the
realization of the high-inflation risk scenario, fundamental processes
require a higher trajectory of the monetary policy rate than the
central scenario. The high-inflation scenario assumes a more prolonged
escalation of geopolitical tensions, resulting in a further increase
in energy prices on international commodity markets. Higher energy
prices will be reflected in higher domestic fuel prices and will also
be transmitted to the prices of other goods and services through
increased transportation and production costs. In addition, recent
adverse weather conditions pose an additional risk of higher
international food commodity prices. In the event of the realization
of these risks, inflation would be higher compared to the central
scenario.On the other hand, under the low-inflation risk scenario
considered by the MPC, the realization of the risks would allow a
faster normalization of monetary policy rate compared to the central
scenario. In recent years, structural changes in the economy have
increased the contribution of relatively high-productivity and less
import-intensive sectors, which has strengthened Georgia’s external
position. According to the central scenario, this trend is expected to
normalize gradually, although there is a possibility that it could
persist over the longer term. In such a scenario, on the one hand,
higher long term potential growth would reduce demand-side
inflationary pressures. On the other hand, a stronger external
position and a lower sovereign risk premium would support a
fundamental appreciation of the real effective exchange rate, further
strengthening disinflationary impact. Furthermore, a rapid
de-escalation of geopolitical tensions, leading to a faster decline in
energy prices, would represent another key driver of the low-inflation
scenario. As a result, headline inflation would converge to the target
more rapidly than in the central scenario.Based on its assessment of
the current macroeconomic environment, the updated scenarios, and the
balance of risks, the MPC considered it appropriate at this stage to
keep the monetary policy rate unchanged. However, given the elevated
inflationary risks, the tightened monetary policy stance is expected
to be maintained for an extended period. The NBG continues to closely
monitor the transmission of external shocks to the Georgian economy
and their impact. Should inflationary risks, including second-round
effects and inflation expectations, intensify beyond current
expectations, the NBG stands ready to tighten monetary policy further.
The monetary policy response aims to ensure that, once the supply-side
inflationary shock dissipates, inflation returns to the 3 percent
target in a timely manner.The next meeting of the Monetary Policy
Committee will be held on September 9, 2026.
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