Monetary Policy Objective
Price stability is a prerequisite for economic stability in the long run. By safeguarding price stability, the National Bank of Georgia protects the purchasing power of the lari and creates a macroeconomic environment where the long-term production potential can be fully utilized.
Price stability implies keeping inflation at low and stable level.
High and volatile inflation has adverse impact on the economy, causing economic uncertainty. This, in turn, impairs investments and increases unemployment. Fluctuating inflation also complicates consumer decision-making and ultimately leads to inefficient allocations of resources in the economy. On the other hand, persistent deflation is also detrimental to the economy. As the overall level of prices are drifting lower, there is less spending, lesstotal real revenues and higher unemployment.
Hence, it is optimal for the overall price level to grow at a low and stable pace. Low and stable inflation facilitates the ability to plan long-term business processes and output (revenues and costs), which in turn encourages investment and economic activity.
The optimal inflation rate in Georgia is 3%. The National Bank of Georgia conducts monetary policy in such a way that inflation is close to 3% in the medium term. In the short run, however, inflation may deviate from the target due to exogenous, one-off shocks.