Kazakhstan: Inflation maintains upward trajectory in February
March 1, 2016
Inflation in Kazakhstan seemed not to stop in February, but recent signs of stabilization in the exchange rate provide a glimpse of hope that inflation will soon begin to moderate. In February, consumer prices rose 1.1% over the previous month, which followed the 1.3% increase observed in December. The monthly increase reflected higher prices for housing, as well as for recreation and culture. The moderation over December stemmed from a slower increase in food prices and in transportation.
Inflation climbed from 14.4% in December to 15.2% in January, which marked the highest level seen since September 2008. Inflation remains well above the National Bank of Kazakhstan inflation target established in September 2015. Under the new inflation targeting regime, the Central bank established an inflation target corridor of between 6.0% and 8.0% for the medium term.
As oil prices plummeted in January, so did the value of the tenge against the U.S. dollar. The Kazakh currency touched a multi-year low on 21 January, when the currency traded at 391 KZT per USD. However, the currency rebounded in the following weeks and began a gradual stabilization, which brought the tenge to trade within a band of 350 and 370 KTZ per USD. The stabilization in the national currency stemmed from the Central Bank’s action to lift interest rates and a mild increase in global oil prices. The National Bank of Kazakhstan (NBK) decided to hike the one-day repo rate—its main monetary policy rate—from 16.00% to 17.00% at its policy meeting on 1 February and also conducted other market operation in order to stabilize the currency. The slight strengthening of the currency also reflects the current rally in oil prices.
Like the Russian ruble, the value of the Kazakh tenge will now be closely correlated with movements in the oil price. It remains to be seen whether oil prices recover steadily this year.
Author: Ricardo Aceves, Senior Economist