Page 19 - GEORptMay21

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.
OUTLOOK: The central bank has a refinancing rate of 8.0%. Although inflation has declined as demand has weakened, the scope for relaxing monetary policy is limited. The authorities must balance the need to support economic activity against the risk of renewed exchange rate pressures in the context of strong exchange rate pass-through and high financial dollarisation. The widening of the output gap and limited depreciation pressures (in nominal effective terms) are projected to pull inflation below 3% in 2021H1 before inflation starts increasing and reaches the target by end-2021 as demand recovers.
19 GEORGIA Country Report May 2021 www.intellinews.com