Galt&Taggart published a report. According to the report, on 30 March 2022, the National Bank of Georgia (NBG) raised the refinancing rate by 0.5ppts to 11.0%. This decision was mostly driven by rise in global commodity prices affecting Georgia via high oil prices as well as a wave of monetary policy tightening across the regional countries, we believe. The NBG’s communication remained balanced like in previous releases, citing that monetary policy will keep a tightening bias until the risks of rising inflation expectations are sufficiently mitigated. We see no signs in the communication that the NBG is considering further tightening, and we believe that the future decisions will be guided by developments on global and regional commodity and financial markets.

The NBG also renewed macro projections reflecting Russia-Ukraine war impact. Key highlights of the statement:

* The NBG expects GDP growth in the range of 3-4% in 2022, revised downwards from the initial forecast of 5.0% (which is in line with our forecast).
* The credit activity is expected to be moderately high during the year, despite tightened monetary policy and recent macroprudential measures. In the Q/A session the NBG governor commented that the annual credit growth expected at 10-15% in 2022.
* The sharp rise in fuel prices expected to have a significant impact on inflation and increased volatility in FX markets leads to additional risks in terms of inflation expectations. NBG expects inflation to start declining from March 2022 mainly related to the elimination of base effect of government subsidy of utility bills, although will remain above the 3.0% target during the year.
* Amid the expected slowdown in economic growth, inflationary pressure stemming from the aggregate demand will be weak and supply-side factors will remain dominant throughout the year.

Expectations on inflation

In the coming months, the inflation outlook expected to be driven by the balance of inflationary and disinflationary factors. On the one hand, rising global commodity prices and supply chain bottlenecks will push inflation upwards. On the other hand, weaker domestic demand, last year’s high base and relative stability of GEL may push price growth downwards. Moreover, possible government subsidies on certain
food products will also limit inflation like in 2020, and there are talks currently on this issue. We expect annual average inflation at 8.1% in 2022 revised upwards from our initial forecast of 5.0%. We do not rule out further tightening in the range of 0.5- 1.0ppts in May/June meetings and expect rate cut in 4Q22.