For the past few years, particularly the last two, the lari has demonstrated remarkable stability. Despite our consistent commitment to the floating exchange rate policy for the lari, said Natia Turnava, President of the National Bank, during the presentation of the National Bank’s annual report in Parliament.

Turnava explained that the stability of the lari’s exchange rate is driven by sound, stable macroeconomic fundamentals.

“The stability of the lari is not solely the result of our monetary policy; it is the outcome of a stable macroeconomic environment. The economy itself, with its sound, stable macroeconomic fundamentals, ensures the lari’s exchange rate stability. Exports, remittances, investments, tourism, and confidence in the lari are the key factors. As for our tools in this regard, which we use and will continue to use, these are our monetary policy and its rate. When we control inflation and inflationary expectations, this positively impacts the exchange rate, and vice versa – when the exchange rate is stable, the pressure on inflation from imported goods’ prices decreases. This is an interconnected process. Therefore, we will continue working in this direction,” Turnava stated.

Additionally, as Turnava noted, inflation remained stably low in 2024, averaging 1.1%, while core inflation, which excludes highly volatile prices of food, energy, and cigarettes from the consumer basket, averaged 1.6%.

According to her, the low-inflation environment was primarily driven by domestic economic factors.

“As a result of the National Bank’s appropriate monetary policy, price stability has been ensured, and inflationary expectations remain within the target range. Furthermore, improvements in the economy’s total production potential have somewhat mitigated inflationary pressures stemming from strong aggregate demand. Additionally, in 2024, the lari’s effective exchange rate remained relatively stable, which contributed to low inflation,” Natia Turnava stated.

She further noted that, in line with the stabilization of inflationary expectations, the National Bank began normalizing monetary policy and reduced the policy rate by 1.5 percentage points to 8.0% in the first half of 2024.

“However, from the second half of the year, amid heightened global risks, the National Bank adopted a cautious approach and kept the monetary policy rate unchanged,” Turnava remarked.