In line with inflation targeting, the National Bank of Georgia uses the inflation forecast as the benchmark to conduct monetary policy. In general, monetary policy decisions are transmitted to the economy gradually and its effects are fully realized within 4-6 quarters. Therefore, the National Bank of Georgia conducts monetary policy in such a way that in case of a deviation from the target, inflation returns to the target within that forecast horizon.
Hence, macroeconomic forecasts represent one of the key components in shaping monetary policy. In this regard, the National Bank of Georgia has introduced a forecasting and policy analysis system (FPAS). This system includes analysis of the current economic situation, macroeconomic forecasting, and evaluation of the risks. Forecasting, in turn, is based on macroeconomic modeling and experts’ judgment.