Page 20 - GEORptApr21

Georgia inflation trends and outlook
PAST TRENDS: The high dollarization of the Georgian economy fortifies the transmission of exchange rate fluctuations to inflation. Concerns over the widening current account gap put pressure on the exchange rate and fuelled inflationary expectations in the second half of 2018, forcing the central bank (NBG) to maintain an active policy particularly with regard to the FX market. In 2019, the NBG could not afford to ease monetary policy, as inflation accelerated from 1.5% at the end of 2018 to 7% one year later. Faced with the sudden stop of inflows that spurred expectations for a major exchange rate correction, Georgian authorities had to act quickly after the onset of the coronavirus pandemic in the spring of 2020. The NBG tightened monetary policy. It has used frequent interventions as needed to supply foreign currency.
CURRENT TRENDS: Georgia's central bank has an inflation target of 3.0%, with CPI in February coming in at 3.6% after dropping below 3.0% in December-January. The regulator has appropriately maintained a moderately tight monetary stance to anchor inflation expectations while safeguarding exchange rate flexibility, the IMF concluded in its December EFF revision. Inflation eased through 2020 helped by subdued demand. The tight monetary policy stance and continued foreign exchange intervention may need to be sustained to prevent disorderly market conditions and bring inflation towards the 3% target, the IMF said.
20 GEORGIA Country Report April 2021 www.intellinews.com