The NBG decided to keep the monetary policy rate unchanged at 8%
As of October 2025, the overall price level in Georgia increased by
5.2 percent year-on-year. The increase in inflation relative to the 3
percent target was mainly driven by food price inflation, which partly
reflected the low base effect from the previous year and the impact of
exogenous factors. However, inflation excluding food prices, as well
as other measures of relatively sticky prices that better reflect
long-term inflation expectations, have remained close to the target
level. In particular, core inflation, which excludes from the consumer
basket the most volatile components, such as food, energy, and
tobacco, remained below the 3 percent target, standing at 2.4 percent
in October. At the same time, service sector inflation remained near
the target, at 2.5 percent. Meanwhile, prices of imported goods remain
low (0 percent), largely reflecting the year-on-year decline in fuel
prices. Despite these developments, the prolonged high level of
inflation in relatively flexible prices (mainly food) warrants
attention regarding potential risks to inflation
expectations.According to the NBG's updated central scenario, the
inflation forecast for 2025-2026 has been revised slightly upwards,
largely due to high food inflation. According to the current central
forecast, inflation will average around 4 percent in 2025, and
decrease to 3.5 percent in 2026. Other things being equal, elevated
food prices are expected to have only a temporary impact on inflation,
with their effects gradually fading. The central scenario precisely
envisages such a development. In particular, the abovementioned
dynamics are temporary in nature and are not expected to create
second-round effects, which means that the associated price pressures
do not to spill over to the prices of other goods and services.At the
same time, economic activity is gradually converging toward its
long-term potential, thereby moderating demand-side pressures on
prices. According to preliminary data, in January-September 2025
economic growth amounted to 7.7 percent. The normalization of
aggregate demand toward its long-run trend is further supported by the
maintenance of tight financial conditions, as reflected in prevailing
market interest rates.Given the high uncertainty, upside risks to
inflation are more pronounced, while downside risks continue to
remain. Accordingly, the Monetary Policy Committee considered both
high-inflation and low-inflation risk scenarios, along with the
central scenario, and the risks operating in different directions were
taken into account in the decision-making process.The high-inflation
risk scenario that the MPC considered, on the one hand, assumes the
realization of global inflationary risks. In particular, the
re-escalation of US tariff policies will exacerbate global
fragmentation more than expected and may have a negative impact on
supply chains. This amplifies the risk of additional price increase
for certain types of commodities in international markets. In this
scenario, beyond tariff policy, the risk of re-escalation of the
geopolitical tensions remains noteworthy as it has a significant
impact on international commodity prices. The high-inflation scenario,
along with exogenous factors, also takes into account the realization
of domestic economic risks. In particular, if inflation remains above
the target for a prolonged period, this could exacerbate inflationary
expectations. At the same time, if aggregate demand remains above its
potential level, demand-side pressures on prices are likely to
intensify. The materialization of these risks would necessitate a
tightening of the policy rate.On the other hand, the Monetary Policy
Committee considered a low-inflation risk scenario, where the
realization of the risks would shape the development of fundamental
factors in a way that requires a lower trajectory of the monetary
policy rate compared to the central scenario. In particular, this
scenario, in line with forecasts by international organizations,
anticipates a marked decline in oil prices in international commodity
markets, reflecting both an increase in supply and a slowdown in
global demand. At the same time, the U.S. dollar index (DXY) will
remain relatively weak globally for longer than anticipated,
contributing to a reduction in headline inflation through lower
imported inflation. Additionally, domestic labor market developments
are placing downward pressure on prices, which strengthens the
possibilities of developing a low-inflation scenario.As a result of
macroeconomic analysis and the assessment of the aforementioned
scenarios, the Monetary Policy Committee has considered it optimal to
maintain a moderately tight monetary policy stance and kept the policy
rate unchanged at 8 percent. Upcoming decisions on the monetary policy
rate will depend on updated data and the realization of risks. If the
impact of one-off factors on inflation is prolonged, the Monetary
Policy Committee stands ready to maintain the current tight stance for
longer than expected and, if necessary, to tighten it further.The NBG
will use all available instruments to maintain price stability. This
means keeping the overall price level increase close to the 3 percent
target over the medium term.The next meeting of the Monetary Policy
Committee will be held on December 17, 2025.
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