The Monetary Policy Committee (MPC) of the National Bank of Georgia (NBG) raised the refinancing rate by 0.25 percentage points to 8.25%, citing escalating Middle East tensions and prolonged disruptions to shipping through the Strait of Hormuz as the reason for the move, which marked the first change in the key rate since May 2024.
“The escalation of geopolitical situation in the Middle East and the prolonged substantial disruptions to shipping through the Strait of Hormuz have created another supply-side driven inflationary shock to the global economy,” the central bank said in a May 6 statement, noting that these factors have fed into rising global inflation and oil prices, which have also pushed up fuel prices in Georgia.
The bank said “the combined direct and indirect effects of these supply shocks” pushed Georgia’s annual inflation to 5.9% in March, compared to a 3% target. While noting that recently accelerated “relatively sticky price measures” increased the risk of second-round effects and inflation expectations, the bank added that they remain “close to the target.” In particular, core inflation (excluding food, energy, and tobacco) stood at 3.2 percent in April, while services inflation was 3.7 percent.
Despite what it described as “severe geopolitical shocks,” the central bank said Georgia’s economy “remains resilient and economic growth stays high,” noting that Georgia’s real gross domestic product (GDP) grew by 10.7% year-on-year in March 2026. “High-productive sectors remain a key driver of economic growth, which partially offsets demand-side inflationary pressures,” it added.
Under its updated central scenario, the Bank assumes that the war in the Middle East will end in the second quarter of 2026, though it stressed that this scenario is “conditional” and “subject to high uncertainty.” Even if tensions ease, the Bank said, “the pace of recovery in global supply capacity is subject to additional uncertainty,” leaving inflation risks elevated.
The MPC also outlined two alternative scenarios that could shape future monetary policy decisions.
Under a high-inflation scenario, geopolitical tensions would intensify or last longer than expected, pushing commodity prices higher and causing broader supply chain disruptions. In that case, the Bank said, “the supply-side inflationary shock would exacerbate in Georgia, amplifying second-round effects, and ultimately inflation would be higher than in the central scenario.”
Under a low-inflation scenario, a faster de-escalation in the Middle East would reduce commodity prices, and “the risks of disruptions to global supply chains would decline significantly, which would be reflected in lower international transportation costs and, ultimately, a moderation of global inflationary pressures.”
“As a result of the ongoing macroeconomic analysis and consideration of existing risks, the MPC considered it optimal to increase the monetary policy rate by 0.25 pp to 8.25 percent,” the statement said, adding “this decision is aimed at keeping inflation expectations firmly anchored at the target.”
The Committee said that it continues to “closely monitor” the geopolitical situation in the Middle East, adding that if “inflationary shocks stemming from geopolitical tensions become even more prolonged and/or their magnitude would amplify the risks of second-round effects,” it would continue to “moderately increase” the monetary policy rate.
The Bank argued that the moderate tightening of monetary policy “reduces the risks of second-round effects and aims to ensure that, once the supply-side shock dissipates, inflation converges swiftly to the 3 percent target.”
It added that if inflationary pressures linked to geopolitical tensions persist or intensify, the MPC stands ready to raise rates further, and “once the inflationary shock dissipates, the NBG will begin a gradual normalization of the policy stance.”
The next Monetary Policy Committee meeting is scheduled for June 17, 2026.
Also Read:
