The Monetary Policy Committee (MPC) of the National Bank of Georgia (NBG) met on September 16, 2020, and decided to keep the refinancing rate unchanged at 8.0 percent.

Price dynamics in recent months are in line with the forecasts of the NBG. As expected, annual inflation continued to decline, reaching 4.8 percent in August. According to the current forecast, other things equal, the downward trend of inflation will continue over the rest of the year, it will fall below the target level in the first half of 2021 and then approach it from below. The expected change in inflation is largely driven by weak aggregate, largely external, demand. However, the Committee also took into account the risks of inflation expectations, that are associated with increased volatility in foreign exchange markets and persistence of above-the-target inflation for a prolonged period. The potential risks of the supply-side are also noteworthy. Against the backdrop of these factors and still high degree of uncertainty, the Monetary Policy Committee kept the rate unchanged. It should be noted that the aggregate demand is positively affected by a considerable fiscal stimulus, including a partial subsidy of interest expense on mortgage loans, which, in fact, has an impact similar to monetary policy easing. The gradual exit from the tightened monetary policy (normalization) will continue in the future and its pace will depend on inflation expectations and the dynamics of economic activity.

Preliminary indicators still point to a weak aggregate demand. According to current estimates, economic activity fell by 5.5 percent in July, year-on-year. However, compared to the previous months, domestic demand continues to recover, which is related to the fiscal stimulus and the better-than-expected dynamics of credit activity and remittances. In contrast, external demand remains significantly reduced. Revenues from international travelers are minimal and, according to preliminary data, in August declined by 96 percent anually. In August, demand for exports decreased by 7 percent annually, however, compared to previous months, some recovery is visible. Along with the decline in export proceeds, imports also fell by 19 percent.

The NBG continues to monitor the developments in the economy and financial markets and will use all available tools to ensure price stability.

The next meeting of the Monetary Policy Committee will be held on October 28, 2020.