Lasha Kavtaradze, chief economist at Galt & Taggart, says that monetary policy restraint is currently reasonable, but if the Middle East escalation lasts 2–3 months, inflationary pressure in Georgia could rise by 0.6–0.7 percentage points. Additionally, a likely increase in electricity tariffs could add 0.3 pp, bringing total potential pressure to 0.9 pp.
Kavtaradze noted that if the escalation is short-lived, inflation may gradually return to previous levels, but it would still not reach the levels projected for January–February. The bank expects average annual inflation this year to remain around 3.5–4%, slightly above the previous target of 3%.
He added that the central bank’s policy rate is expected to stay unchanged at 8% for most of the year. Earlier projections allowed for a gradual reduction to 7.5%, but geopolitical risks in the Middle East have shifted expectations, making rate cuts less likely.
Georgia’s National Bank has maintained its policy rate at 8% for the past two years. It explains that, despite rising inflation risks, ongoing external shocks are partially offset by the country’s stable sovereign risk premium, allowing the central bank to maintain or tighten policy if needed.
