Page 20 - GEORptOct21

refinancing rate. It already stands at 9.5% following two hikes this year.
In the medium term, the IMF expects Georgia’s National Bank (NBG) to bring headline inflation down to 2.8% y/y on average in 2022 and 2.3% y/y at the end of next year (December 2022). Nevertheless, the Fund concurs that there are possible rate hikes ahead to keep prices under control, as GDP growth well above potential tends to generate inflationary pressures.
“With recovery now faster than expected, risks to inflation are tilted to the upside, and the NBG should be ready to promptly hike rates further if inflation expectations or core inflation suggest high inflation risks becoming entrenched,” the IMF recommended, following Article IV Consultations with Tbilisi.
The main drivers for a sharp rise in inflation, seen by Galt & Taggart analyst Kavtaradze as climbing to above 10% by the end of the year (the IMF’s projection is 9.4%), are base effects following subsidies paid by the government in the winter of 2020-2021 and the increase in the price of bakery products consecutive to rising wheat prices expected on the regional market.
Kavtaradze added that “inflation will be affected by rising prices for bread products, although the pressure of other categories may be eased and balanced. But this does not mean that there will be a significant downward trend in inflation in the coming months.”
Russia's new quota and export tax has added to concerns about the Black Sea wheat price, while firm freight prices are also complicating forward deals.
“The new crop Black Sea wheat started from high [price] levels, and there are not many forwards in the books... much less compared with last year,” a broker told Fastmarkets.com.
The Russian government said at the start of February it would impose a floating tax for wheat exports from June 2. In Georgia, about 80,000-100,000 tonnes of wheat are harvested every year. That covers less than 10% of the overall consumption countrywide.
Last year, 87.3% of the wheat imported into Georgia (430,236 tonnes) came from Russia. Georgia plans to partially replace Russian wheat with Kazakh grains with the Russian wheat export tax doubling per tonne, according to executive director of the Georgian Flour Producers Association Levan Silagava, speaking in March.
20 GEORGIA Country Report October 2021 www.intellinews.com