The National Bank of Georgia has taken a major step to increase its policy transparency, publishing for the first time a forecast of its monetary policy rate.
In a brief overview of its May Monetary Policy Report, the NBG said:
... inflation is expected to continue its recent downward trend and remain below target in the following quarters. Inflation expectations are also stable, while economic activity still falls behind the potential. Considering these developments the NBG deemed monetary policy normalization appropriate, which implies gradually cutting the policy rate until its long-run neutral level is reached. According to current estimates, in the long-run the neutral level of the monetary policy rate is 5-6%. Further monetary policy moves will depend on the expected dynamics of the inflation rate, the factors influencing it, and economic activity in general.
The forecast of monetary policy rate is not a promise by the National Bank. Rather it only is an expected trajectory of policy rate given that all the exogenous factors incorporated into the forecast materialize as expected. Despite this uncertainty, which is a characteristic of any forecast, it still contains valuable information for the expected trajectory of short-term interest rates, as long-term rates largely depend on them.
In revealing the forward rate path, the NBG is following in the footsteps of leading inflation-targeting central banks from small open economies, such as the Reserve Bank of New Zealand, Norges Bank, Riksbank, and - of course - the Czech National Bank.