The National Bank of Georgia on Wednesday said it was continuing its exit from a tight monetary policy by reducing the refinancing rate by 0.75 percentage points, down to 8.25 percent, Azernews reports, citing Agenda.

The Bank said both domestic and external factors had contributed to sustaining a “low inflation environment” in the country, with headline inflation “well below the target”.

The low inflation environment helps the inflation expectations decline, which further significantly lowers the inflationary risks in the medium term. Other things equal, inflation is expected to remain below the target of three percent at the beginning of 2024, while stabilising close to it in the medium term”, the NBG said.

The central bank also highlighted “major inflationary risks” by citing Red Sea “tensions” and normalised domestic economic activities.

The hostilities in this region are still ongoing; however, shipment costs, after surging in December and January, declined to some extent in February. Meanwhile, as it was expected, local economic activity is gradually approaching its potential trend [...] in January, annual economic growth equalled 5.8 percent, which indicates the neutralisation of demand-driven inflationary pressures”, the Bank said.

The body also shared its projections, saying with the gap between economic activity and its pre-pandemic trend being fully closed, it anticipated growth of economic activity in 2024 to gradually normalise around that of the potential gross domestic product.

The NBG said it would continue to monitor developments in the economy and financial markets and use “all available tools” to ensure price stability.