Acting Governor of the National Bank of Georgia (NBG), Natia Turnava, presented the draft outlining the main directions of monetary and foreign exchange policy for the next three years to the Finance and Budget Committee of Parliament. The document sets the inflation target, details the primary monetary policy tools, and provides an analysis of the current macroeconomic environment and associated risks. 

During her address, Natia Turnava highlighted the ongoing trend of decreasing inflation in Georgia, attributing it to the consistent and prudent monetary policy framework that has ensured price stability. 

The Acting Governor emphasized the benefits of the inflation-targeting regime, noting that price stability is a critical foundation for sustainable economic growth. Despite significant external shocks in recent years, inflation in Georgia has remained below the target rate. Inflation began its downward trend in early 2023 and has remained below the target for 20 consecutive months. In November 2024, inflation stood at 1.3%.  Turnava also noted that Georgia is experiencing high economic activity alongside low inflation. Preliminary data indicate an average economic growth rate of 10% for the first ten months of 2024. Importantly, this growth is accompanied by an increase in the economy's overall potential, mitigating demand-side price pressures. 

 

“In a small open economy like Georgia, the inflation-targeting framework is crucial for aligning monetary policy responses with economic cycles. This approach helps to smooth business cycle fluctuations, stabilizing inflation and employment-key prerequisites for long-term economic growth and improved well-being for the population,” Turnava stated.  She added, “Our inflation forecast remains low, and we are optimistic that this favorable combination of price stability and high economic growth will persist.” 

 

Turnava also reviewed recent developments in monetary policy. Since May 2023, the NBG has gradually reduced the policy rate by a total of three percentage points, bringing it to 8.0% as of November 2024. Based on the current baseline macroeconomic forecast, inflation in 2024 is projected to average 1.2% and stabilize around the target rate in the medium term. 

However, she cautioned that the monetary policy rate would continue to normalize at a measured pace, considering existing macroeconomic risks. “Globally, and particularly in the region, uncertainties remain high. Against this backdrop, it is essential to maintain a cautious and measured approach. Assuming no significant changes, the policy rate is expected to stabilize at its neutral level, currently estimated at 7%,” Turnava noted. 

 

The Acting Governor also discussed the National Bank of Georgia's long-term goals, emphasizing its sustained focus on accumulating international reserves. She explained that the foreign exchange interventions in October were aimed at mitigating excessive exchange rate volatility during a period of mass agitation and heightened uncertainty. However, reserve accumulation has since resumed, with net purchases totaling USD 124.5 million in November.

 

Turnava further elaborated on the NBG's larization policy and measures, emphasizing that ensuring price stability is essential for increasing confidence in the lari. She noted that positive larization trends in the banking sector—reflected in the growth of GEL deposits—demonstrate this growing confidence. However, she acknowledged that dollarization remains a significant challenge.

 

“As anticipated, the measures taken have led to increased larization of loans,” Turnava said. 

 

In conclusion, Turnava emphasized that the proposed monetary and exchange rate policy would ensure price stability in the medium term, bolster the Georgian economy’s resilience to potential shocks, and support sustainable long-term growth. 

 

It is worth noting that the “Main Directions of Monetary and Exchange Rate Policy” are developed annually by the Monetary Policy Committee of the National Bank of Georgia for the upcoming three years and submitted to Parliament for approval. These directions define the inflation target and outline the key monetary policy instruments to be used in achieving monetary and foreign exchange policy objectives.