At its meeting on May 6, 2026, the Monetary Policy Committee of the National Bank of Georgia (NBG) raised the monetary policy rate by 0.25 percentage points. The monetary policy rate now stands at 8.25 per cent.

According to the National Bank, the prolonged escalation of the geopolitical situation in the Middle East, coupled with substantial disruptions to shipping through the Strait of Hormuz, has triggered a new, global supply-side inflationary shock. The sharp rise in raw energy prices on international markets has already fed through into higher inflation globally. At the same time, the geopolitical situation is hampering international transportation and heightening the risks of supply chain disruption, which, in turn, is driving up production costs and may become an additional source of inflationary pressure. The direct effect of the aforementioned rise in oil prices has already been reflected in fuel prices on the Georgian market.

As a combined result of the direct and indirect effects of these supply-side shocks, overall inflation in April deviated from the 3 per cent target and reached 5.9 per cent. Meanwhile, the more rigid price indicators, which better capture longer-term inflationary processes and inflation expectations, have accelerated in recent months, making second-round risks a matter of greater concern. Notwithstanding this acceleration, the indicators remain close to the target. Specifically, core inflation (excluding food, energy, and tobacco) stood at 3.2 per cent in April, whilst services inflation reached 3.7 per cent.

Despite severe geopolitical shocks, the Georgian economy continues to demonstrate resilience, with economic growth remaining robust and sustained at a high level. According to preliminary data, economic activity growth in March 2026 stood at 10.7 per cent, and at 9.1 per cent for the first quarter as a whole. Moreover, high-productivity sectors remain a significant driver of economic growth, which partially offsets demand-side inflationary pressures.

The National Bank’s updated central scenario envisages the conclusion of the ongoing war in the Middle East during the second quarter. However, this assumption is provisional and carries a significant degree of uncertainty. Furthermore, even if a de-escalation of the geopolitical situation materialises within that timeframe, the duration of the recovery of global supply capacities carries additional uncertainty. Accordingly, upside risks to inflation are more pronounced. That said, the possibility of a faster de-escalation of the geopolitical situation relative to the central scenario also remains. Against this backdrop, the Monetary Policy Committee considered both high-inflation and low-inflation risk scenarios alongside the central scenario.

Should the high-inflation risk scenario materialise, the underlying processes would require a higher trajectory for the monetary policy rate than that envisaged under the central scenario. The high-inflation scenario assumes a further prolongation and intensification of the geopolitical situation, under which commodity prices on international markets would rise more sharply, and supply chain disruption would become more widespread. As a result, the supply-side inflationary shock in Georgia would intensify, exacerbating second-round effects and ultimately driving inflation higher than under the central scenario.

Conversely, should the risks envisaged under the low-inflation scenario considered by the Monetary Policy Committee materialise, the policy rate could be normalised more swiftly than under the central scenario. In the event of a rapid de-escalation of the acute geopolitical situation in the Middle East, pressure on prices in international commodity markets would ease. The risks of disruption to global supply chains would also decrease considerably, leading to lower international transportation costs and ultimately easing global inflationary pressures.

Following its current macroeconomic analysis and assessment of existing risks, the Monetary Policy Committee judged it appropriate to raise the policy rate by 0.25 pp to 8.25 per cent. This decision is aimed at keeping inflation expectations anchored firmly to the target. The moderate tightening of monetary policy in turn reduces the risks of second-round effects and is intended to ensure that, once the supply-side shock dissipates, inflation returns swiftly to the 3 per cent target.

The National Bank will continue to monitor developments closely and assess the intensity of their transmission to the domestic market. If the inflationary shocks resulting from the geopolitical situation persist for an extended period or their scale increases, thereby heightening the risk of second-round effects, the Monetary Policy Committee will maintain its approach of gradually raising the monetary policy rate. Once the inflationary shock has run its course, the National Bank will begin a gradual normalisation of policy.

The next meeting of the Monetary Policy Committee will be held on June 17, 2026.