Galt & Taggart expects the National Bank of Georgia (NBG) to leave its monetary policy rate unchanged if it continues to base its decision on economic data, economist Lasha Kavtaradze said ahead of the Monetary Policy Committee meeting.
Kavtaradze said August inflation remained high at 5.6%, but its composition does not indicate significant “second-round” effects. The NBG had previously said it could raise rates further if such effects became stronger, but G&T currently expects the rate to remain unchanged.
He noted that decisions by major international central banks could also influence the NBG. If tighter policies by the Federal Reserve and other central banks narrow the interest-rate gap with Georgia and make lari investments less attractive, the NBG could consider further tightening, although Kavtaradze does not expect such a move at the upcoming meeting.
Kavtaradze also said the NBG has significantly increased foreign-currency purchases since its rate hike in May, boosting lari liquidity in commercial banks. As liquidity increased, demand for refinancing loans fell sharply, from GEL 4.2 billion at the beginning of the year to around GEL 300 million by the end of August. The NBG has introduced various instruments to absorb excess liquidity and prevent it from fueling inflation.
