Natia Turnava: If the conflict in the Middle East subsides in the coming months, inflation will begin to decline next year; we are equally prepared to tighten monetary policy and, once external factors have subsided, begin easing it

If the ongoing conflict in the Middle East subsides in the coming months and the inflationary pressures stemming from it gradually ease, inflation will average 5.4% this year and decline to an annual average of 3.5% in 2027, under the National Bank’s updated baseline scenario, all other things being equal. National Bank of Georgia President Natia Turnava made this statement while presenting the draft of the main directions of monetary and foreign exchange policy for 2027–2029 at a meeting of the Finance and Budget Committee.

She said that, at this stage, the National Bank is maintaining a relatively tight monetary policy rate.

“The expected inflation trajectory will largely depend on global developments, particularly international energy prices. If the ongoing conflict in the Middle East subsides in the coming months and the inflationary pressures stemming from it gradually ease, inflation will average 5.4% this year and decline to an annual average of 3.5% in 2027, according to the National Bank’s updated baseline scenario, all other things being equal.

This means that inflation will begin to decline next year and approach the target level of 3% in the second half of the year. However, this forecast is based on the assumption that the situation in the Middle East will stabilise and that the resulting inflationary pressures will gradually subside. This is a factor beyond our control, but our baseline forecast is based on this assumption. Uncertainty in this regard remains high, and risks remain acute.

As for our monetary policy response to these challenges, taking into account external shocks and the risks of second-round effects, we took preventive action in May 2026 by tightening the monetary policy rate by 0.25 percentage points. It currently stands at 8.25%, and we have maintained it unchanged ever since.

Our goal is to ensure that, once the impact of external shocks has subsided, inflation returns to its target level quickly. Therefore, we are equally prepared to tighten policy further if we observe an intensification of external shocks and the emergence of so-called second-round effects.

Likewise, if external factors subside in line with our baseline scenario, we are prepared to begin gradually easing monetary policy. At present, we are monitoring developments very closely, maintaining a relatively tight monetary policy rate and paying particular attention to external developments and external shocks,” Turnava stated.