Page 42 - GEORptAug22

TBC expects Georgia’s central bank to lower refinancing rate by year-end
expected at 10-15% in 2022.
Georgia’s central bank is in a position to adopt a more dovish position and will perhaps cut the refinancing rate from 11% currently to 10.25% by the end of the year, CEO of Georgian bank TBC, Vakhtang Butskhrikidze, commented, as quoted by Business Media Group.
TBC lowered its baseline forecast for the year-end inflation from around or slightly above 9.5% to around 8.5%, assuming some further decline in commodities and a few percentage points stronger GEL, according to the bank’s weekly research notes.
The grounds mentioned by the bank for the revision are “the moderation of international commodity prices and PPI in Georgia, higher probability of global slowdown and the stronger GEL”.
"According to our assessment, the inflation pressure is expected to subside in the following months. Our forecast for the refinancing rate already assumes a small decrease, 0.25 percentage points. You could call it a symbolic reduction, but I think it's still important.[...] Hopefully, we will soon see that the price is no longer rising fast, this means that the monetary policy rate will be aggressively reduced," said Otar Nadaraya, TBC’s chief economist.
The bank’s “ best guess” is that this year the policy rate will decline from 11% to around 10.25%, instead of 10.75 projected earlier, according to the weekly research note.
Separately, TBC remains bullish on the local currency.
“As for the GEL REER (real effective exchange rate), the GEL still looks moderately undervalued from the long-term perspective, especially when looking at the PPI best estimate, which should be superior to the CPI one if the competitiveness is a concern. Therefore, we still believe there is further room for the GEL appreciation,” TBC’s research note reads.
The National Bank of Georgia increased the refinancing rate by 0.25pp to 11% in March, in response to the start of the war in Ukraine and the resulting increased inflationary expectations.
In June the Consumer Price Index increased by 0.2% y/y, while the annual inflation rate amounted to 12.8% y/y.
42 GEORGIA Country Report August 2022 www.intellinews.com