Kazakhstan Monetary Policy January 2018


Kazakhstan: Central Bank cuts base rate by 50 basis points, surprising market analysts

January 15, 2018

The National Bank of Kazakhstan (NBK) decided to cut the one-day repo rate—also known as the base rate—by 50 basis points to 9.75%, with a corridor of plus or minus 1.0%, at its 15 January monetary policy meeting. The Bank’s decision came as a surprise to most market analysts, who had expected the Bank to continue taking a cautious stance by holding the rate steady at 10.25%, where it had been since August 2017.

Aimed at boosting domestic demand to fuel higher growth, the Bank’s decision to reduce the rate for the first time in six months was motivated by slower-than-projected inflation by the end of 2017 and expectations of declining inflationary pressures in the medium-term. Inflation fell to 7.1% in December (November: 7.3%), coming in markedly below the Central Bank’s forecast of 7.5%–7.7%, as oil prices fell in the month following an earlier price surge. Reduced volatility in the tenge also contributed to easing inflation to a lower level than expected.

The Bank projects subsiding inflationary pressures until the end of the current year and into 2019 amid moderating inflation expectations among households. It stated, however, that upward pressures on inflation could stem from “tariffs for paid services of monopoly enterprises” in the first quarter of 2018. Solid growth is expected again this year thanks to oil production cuts under OPEC’s agreement, which is expected to keep oil prices propped up. Increased trade against a strengthening global economy should help to firm up the economic recovery.

The Bank’s statement was devoid of any forward guidance, only noting that “the monetary policy conditions remain neutral” amid expectations of a further decline in inflation, and that the current real interest rate is at a level that is consistent with the economy’s long-term potential growth.

The next monetary policy meeting is scheduled for 5 March.

The Consensus Forecast view among the analysts we surveyed is that the Central Bank will continue easing its monetary stance. FocusEconomics panelists see the base rate ending 2018 at 9.25%. Going forward, the Central Bank is expected to continue trimming the interest rate, and our panelists see the rate ending 2019 at 8.25%.


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Kazakhstan Monetary Policy Chart

Kazakhstan Monetary Policy January 2018

Note: NBK base rate in %.
Source: National Bank of Kazakhstan (NBK).

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