Georgia's National Bank decreased the refinancing rate by 0.25 percentage points to 10.25% after monitoring developments in the domestic economy and financial markets.
The bank said annual inflation in Georgia had dropped to 0.6% in June and was aided by a declining trend in prices of oil and raw food commodities on global markets, with international shipping prices also dropping to pre-pandemic levels.
The strict domestic monetary policy and low inflation expectations allowed for further reduction in inflation, the institution said, adding that inflation risks remained high despite the “positive dynamics”, noting uncertainty in commodities markets was being worsened by the current “heated geopolitical situation”.
“Along with external risks, domestic economic developments remain noteworthy in terms of inflationary pressure. In particular, economic growth is still high this year, and the NBG has revised its growth forecast up to six percent for 2023”, the statement reads.
“If, due to strong aggregate demand, economic growth turns out to be even higher, additional pressure on inflation will arise. In addition, current trends in the labour market must still be considered. At this stage, wage growth significantly exceeds productivity growth. If sustained for a long time, such a trend will increase production costs and eventually affect prices as well”, it also said.
