The Governor of the National Bank of Georgia (NBG) discussed the advantages of the inflation-targeting regime and the steps taken in the direction of the monetary policy in the Parliament.
According to him, price stability is a necessary prerequisite for high and stable long-term economic growth. In order to achieve price stability, the National Bank implements monetary policy with the inflation targeting regime, which is recognized as the best international practice today.
"In the conditions of inflation targeting, the target rate of inflation is achieved by changing the main instrument of the monetary policy of the National Bank (refinancing rate). The decision to change the monetary policy rate is made as a result of analyzing the macroeconomic environment, considering the current situation on the financial markets, forecasting the dynamics of inflation, evaluating macroeconomic risks affecting inflation and inflation expectations. If the inflation forecast exceeds its target rate, the monetary policy rate will increase or remain tight, and on the contrary, if the inflation forecast is below the target level, the monetary policy will be softened, that is, the monetary policy rate will decrease.
To achieve the target short-term interest rate in the money market, the National Bank of Georgia uses the following tools of monetary policy: refinancing loans, one-month open market instrument, certificates of deposit, operations with government securities in the secondary market, foreign exchange interventions, permanent instruments, minimum reserve requirements and others. As a result of successive shocks in recent years, inflation has exceeded its target level. During the pandemic, inflationary pressure was strong in Georgia, as well as around the world. Worldwide restrictions have disrupted supply chains and increased production costs. At the same time, the world's transportation and other operational costs have increased dramatically, which, in turn, has affected the final price of almost all types of products. Inflationary pressure was aggravated by the increase in the prices of consumer products on the international markets," Gvenetadze said.
