The rapidly changing situation in the Middle East does not yet constitute a sufficient reason for the National Bank of Georgia (NBG) to change the refinancing rate. The Monetary Policy Committee (MPC) of the National Bank has kept the refinancing rate unchanged at 8%. As stated in the NBG press release, inflation is expected to remain above the target rate in the near future.

In addition, the NBG emphasizes that fuel prices have already surged in Georgia as of March and will be the main driver of inflation growth. However, it is noted that last month saw a diminished contribution of food prices to overall inflation, which, according to the NBG, is perceived as a positive signal. The NBG indicates that given the high uncertainty of the situation, there is a possibility that external geopolitical tensions will stabilize in the near future, which in turn will have a positive impact on price levels in Georgia.

"As a result of the aggravated geopolitical situation in the Middle East and significant disruptions to transportation through the Strait of Hormuz, traditional supply chains have been temporarily disrupted. On the one hand, these processes have already significantly increased the prices of energy carriers and transportation on international markets. On the other hand, if this trend persists, the risk of global inflationary processes becoming more pervasive increases. It is noteworthy that before the aggravation of the geopolitical situation, the inflation dynamics corresponded to the central scenario of the National Bank of Georgia, according to which, starting from the second quarter of 2026, against the background of the impact of temporary factors, inflation should approach the target rate of 3%. In February 2026, in line with expectations, overall inflation amounted to 4.6%. It is important that the contribution of food prices to inflation began to decline, while the contribution of fixed price indicators and measures of inflation expectations were still close to the target. However, the increased oil prices against the backdrop of the ongoing geopolitical processes have already been partially transmitted to the Georgian market, which will have an upward impact on overall inflation in March. Accordingly, according to the updated assessment of the National Bank, inflation in the short term will be higher than in the central scenario. In the medium term, the expected trajectory of inflation will be determined primarily by the severity and duration of global inflationary processes, around which high uncertainty remains.

According to the assessment of the Monetary Policy Committee, the current situation has shifted from the recently published central scenario to a high-inflation scenario, which identified increased oil prices against the backdrop of the aggravated geopolitical situation as one of the risks. It is noteworthy that the severity and duration of the transmission of inflationary pressure arising from the geopolitical situation to the Georgian economy significantly depends on subsequent developments. It is also worth noting that despite these trends, 'Georgia's sovereign risk premium remains at a stable low level. This somewhat neutralizes the severity of the external shock,' the press release says.

According to the NBG press release, at the current meeting, the Monetary Policy Committee additionally discussed the high-inflation and low-inflation risks relevant to the current situation.

'Prolonged high energy prices will increase global transportation and production costs, which will lead to additional supply shocks. In the context of successive shocks, the risk of aggravating second-round effects also increases. In response to these processes, central banks of developed countries may even have to tighten monetary policy, which, in turn, will create a risk of capital outflows from emerging economies. Taking into account the above factors, the risks of imported inflation growth in Georgia will increase. In case of the realization of these risks, fundamental processes will require a higher trajectory of the monetary policy rate. On the other hand, there are also signs of the realization of low-inflation risks. In particular, inflationary pressures arising from geopolitical factors may turn out to be temporary. In case of a relatively rapid elimination of disruptions in the Strait of Hormuz or an increase in supply from other oil-producing countries, energy prices may decrease rapidly compared to the peak price. In addition, if Georgia's sovereign risk premium is maintained at a low level for a long time, the external balance may improve further, which will have a downward effect on inflation. The realization of low-inflation risks implies the possibility of easing the monetary policy stance. As a result of the ongoing macroeconomic analysis and consideration of existing risks, the MPC considered it optimal to leave the monetary policy rate unchanged at 8% at this stage. In conditions of high uncertainty, the NBG continues to actively monitor current events and the intensity of their transmission to the local market. In the event that the inflationary shocks caused by the geopolitical situation are prolonged and/or their scale increases the risks of the so-called "second round" effects, the MPC expresses its readiness to maintain the current tight stance for a longer period than expected and, if necessary, to further tighten it,' the National Bank said."