Weekly Market Watch
Inflation retreated to 11.5% y/y in Jul-22
Annual CPI inflation retreated to 11.5% in Jul-22 from a 12.8% inflation in previous month, mainly due to the last year’s high base effect. Core inflation (non-food, non-energy, and non-tobacco) increased to 7.0% (+0.5ppts m/m) in July. By categories, annual inflation was mainly driven by price changes in food and non-alcoholic beverages (+16.4% y/y, 5.25ppts), transport (+20.6% y/y, 2.46ppts), housing, water, electricity, gas and other fuels (+13.3% y/y, 1.31ppts), restaurants and hotels (+14.3% y/y, 0.62ppts), alcoholic beverage and tobacco (+8.3% y/y, 0.55ppts), and furnishing, household equipment and maintenance (+9.5% y/y, 0.49ppts) categories. On a monthly basis, there was a 0.2% inflation in Jul-22, driven by price changes in food and non-alcoholic beverages (-1.4% m/m) and transport (+2.4% m/m) categories.
NBG keeps key rate unchanged at 11.0%
The NBG kept its key rate unchanged at 11.0% on 3 August 2022 meeting. The NBG noted that elevated inflation and inflationary risks remain a global challenge recently, including Georgia, where inflation remains high at 11.5% in July. The regulator expects inflation to decline in the current and next years, and gradually approach the 3% target level from 2H23. NBG also noted that a faster decline in inflation is hindered by growing aggregate demand, to which high consumption makes a significant contribution. The regulator emphasized that despite the tight monetary policy, credit activity is still high this year, due to excessive growth of consumer and FX loans. Therefore, from 15 August 2022 for the period of 1 year, maximum tenor of consumer loans will be reduced from 4 to 3 years (announced at the press conference). In addition, NBG expects that interest rate hikes by the FED and ECB will have an effect on FX lending in Georgia similar to monetary policy tightening. Under such circumstances, the regulator projects 9.0% economic growth in Georgia in 2022, revised from previous forecast of 4.5%. The NBG also reiterated that if the inflation expectations rise further and/or demand-side pressures on prices exacerbate, further tightening of policy or maintaining the current tight stance for a longer period might become necessary. The next committee meeting is scheduled for 14 September 2022.
NBG buys US$ 30.0mn
Last week, NBG intervened in the FX market and purchased US$ 30.0mn through FX auctions. Notably, NBG also purchased US$ 110mn through BMatch platform in Jul-22. The NBG is a net buyer of US$ 171.6mn year-to-date, while GEL appreciated by 11.8% vs. USD in the same period.