According to the Organic Law of Georgia on the National Bank of Georgia (NBG) the mandate of NBG is to ensure price stability. The NBG conducts monetary policy to achieve its main goal – price stability. Constitution of Georgia (Article 68) and the Organic Law of Georgia on the National Bank of Georgia (Article 4), entrusts the NBG as an independent central bank, with the conduct of monetary policy.
Price stability means maintaining inflation low and stable. The 3% inflation is optimal for the Georgian economy at the current stage of development.
The monetary policy of the NBG relies on inflation targeting regime, the latter being the best international practice to achieve price stability. The National Bank of Georgia, under this regime, has a pre-defined inflation target - 3% and conducts monetary policy in such a way to maintain inflation around the target rate in the medium term.
Under inflation targeting regime the NBG implements monetary policy by setting the monetary policy rate (refinancing rate). Changes in the monetary policy rate affect the economy through interest rate, credit, expectations, and exchange rate channels. The decision on the monetary policy rate is based on the analysis of the current state of the economy and macroeconomic forecasts.
The inflation target and the key instruments of monetary policy are specified in the Main Directions of Monetary and Exchange Rate Policies document, developed by the Monetary Policy Committee of the National Bank on an annual basis, and approved by the Parliament of Georgia.