On May 7, 2025, the Monetary Policy Committee (MPC) of the National Bank of Georgia (NBG) decided to maintain the monetary policy rate (refinancing rate) at 8.0%. This decision reflects the NBG's assessment of current economic conditions and inflation dynamics.

Inflation Overview

As of April 2025, Georgia's annual inflation stood at 3.4%, slightly above the NBG's target of 3%. Core inflation, which excludes volatile items such as food, energy products, and cigarettes, was recorded at 2.3%. The NBG attributes the current inflation dynamics to a combination of factors:

• International Influences: Rising global food prices have contributed to increased inflation. However, the relatively stable exchange rate of the Georgian lari against the U.S. dollar, influenced by the global depreciation of the U.S. dollar, has partially mitigated these effects.

• Domestic Factors: A one-off increase in bread prices in the local market, starting from March 2025, has contributed to the uptick in food inflation.

Despite these pressures, domestic economic fundamentals continue to support price stability. Improved production capacity has partially offset price pressures stemming from strong aggregate demand. Additionally, long-term inflation expectations remain stable, as indicated by both domestic (excluding the bread price effect) and service inflation measures, which remain close to the target level of 3%.

Economic Activity and Growth Projections

Economic activity in Georgia remains robust. In the first quarter of 2025, real GDP growth averaged 9.3%, driven by structural changes in the economy and strong domestic demand. The NBG has revised its 2025 real GDP growth forecast upwards from 5% to 6.7%, reflecting stronger-than-expected economic performance. In the long term, economic growth is expected to stabilize within its potential level of 5%.

Risk Scenarios and Monetary Policy Outlook

The MPC has considered two potential risk scenarios:

• High-Inflation Risk Scenario: This scenario involves increased global economic fragmentation and rising stagflationary risks, which could lead to higher imported inflation in Georgia.

• Low-Inflation Risk Scenario: In this scenario, the global weakening of the U.S. dollar index (DXY) and the appreciation of the Georgian lari would reduce the debt burden of dollar-denominated loans, alleviating inflationary pressures.

Given the increasing uncertainty, the MPC has opted for a cautious approach toward further normalization of the policy rate, deciding to keep the monetary policy rate unchanged at 8%. Upcoming decisions on the policy rate will depend on the analysis of risks and resulting updated macroeconomic forecast scenarios.

The NBG remains committed to using all available instruments to maintain price stability, aiming to keep the overall price level increase close to the 3% target over the medium term.

The next meeting of the Monetary Policy Committee is scheduled for June 18, 2025.