Inflation Targeting

    The National Bank of Georgia’s monetary policy is conducted through inflation targeting regime. Under this regime the NBG determines an inflation target and monetary policy is conducted in such a way that inflation always converges to the target in the medium term. In the short-run inflation may deviate from the target level due to exogenous shocks.   


    In the short-run Inflation may deviate from the target, but monetary policy ensures that it stays close to the target in the medium term


    Inflation forecast is an intermediate target of NBG. In general, monetary policy decisions  are transmitted gradually to the real economy and its effects are fully materialized within 4-6 quarters. Thus, NBG conducts its monetary policy in such a way that in the event of a deviation from the target, inflation would return to the target within the forecast horizon. If no other additional shocks occur during this period, then inflation will most certainly return to its target at the end of the period. However, if an unanticipated shock occurs, then the NBG will still have to change its policy rate in order to return inflation to its target level.


    The NBG embarked on inflation targeting in 2009. At the initial stage, the NBG introduced liquidity management tools, to improve efficiency of liquidity management of the financial sector. That subsequently strengthened the monetary policy transmission mechanism. With the passage of time, the inflation targeting regime has become more forward-looking. In 2013, NBG introduced a Forecasting and Policy Analysis system (FPAS). This system encompasses a detailed analysis of risks and current economic stance, along with macroeconomic forecasting that is based on macroeconomic modeling and expert judgment. In 2016, the NBG moved to another phase of monetary policy and started to publish projection of monetary policy rate trajectory. This tool allowed for greater predictability of monetary policy, intensifying the impact of policy rate changes on the real economy through expectations.