Georgia’s National Bank has held its refinancing rate at 8% for the second consecutive year, despite the economic turmoil resulting from the Iran war and transit volatility through the Strait of Hormuz.
The refinancing rate has remained unchanged since May 2024.
In their announcement on Wednesday morning, the bank stated that inflation was approaching the 3% target before the war began, with the year-on-year rate standing at 4.6% in February.
The US–Israeli war on Iran has already influenced the Georgian market and is expected to exert upward pressure on prices.
The bank said inflation was expected to rise in March, however, in the medium term, the projected path of inflation largely depends on the intensity and persistence of global inflationary pressures, which remain subject to considerable uncertainty.
The National Bank’s Monetary Policy Committee said the situation was shifting from a low-risk to a high-risk scenario, particularly due to higher petrol prices. The severity and duration of inflationary pressures on the Georgian economy stemming from the geopolitical situation is expected to largely depend on how the conflict evolves.
Despite recent developments, the sovereign risk premium indicator for Georgia has remained broadly stable at low levels, which has helped mitigate the impact of the external shock.
Alongside high inflation risks, the bank also sees signs of low-inflation risks, as geopolitical pressure may be temporary and could be resolved.
If disruptions in the Strait of Hormuz are resolved relatively quickly and supply from other petrol-producing countries increases, energy prices may decline sharply from their peaks. Considering all of the above, the bank decided to keep its key policy rate unchanged at this stage and will revert to a tightening policy if needed.
According to Society and Banks, a civil society organisation, 241,326 variable-rate loans had been issued as of 1 February, with the absolute majority of these linked to the 8% interest rate.
Roman Gotsiridze, a former MP and former president National Bank, has told OC Media that the fact that monthly repayments for these loans will remain unchanged was an ‘undoubtedly positive development’.
The next rate decision by the Monetary Policy Committee will be made on 6 May.
Helena Bedwell
