Kazakhstan Monetary Policy July 2020


Kazakhstan: Central Bank cuts base rate to 9.00% in July

July 20, 2020

The National Bank of Kazakhstan (NBK) cut the base rate by 50 basis points to 9.00% at its monetary policy meeting on 20 July, after June’s decision to hold. Furthermore, the Bank reduced the interest rate corridor to plus or minus 1.5 percentage points around the base rate (June: plus or minus 2.0 percentage points).

The Bank’s decision was driven by a need to support a depressed economy and counter the fallout from the pandemic, after the economy contracted at a sharper pace than expected in H1. Moreover, the government reintroduced restrictions in July, which should weigh on activity in H2. In addition, the Bank judged inflation to be under control, despite ticking up in recent months. On the narrowing of the interest rate corridor, the decision was underpinned by the stabilization of financial markets and aimed at reducing volatility of money market rates.

Going forward, the Bank adopted a neutral stance, stating: “Further decisions on the base rate will be made taking into account the compliance of the actual inflation dynamics with its forecast, as well as the balance of internal and external risks.” As such, if inflation undershoots forecasts or the economy underperforms, this could open the door for further cuts.

Zaigrin Artem, chief economist at SOVA capital, said: “We treat the tone of the statement as neutral. The NBK pointed out that the next policy actions would be contingent on inflation trajectory and the balance of domestic and external risks. We think that another round of lockdowns in July could be extended due to the still tough Covid-19 situation. It will likely drag the economy down further, in our view. As a consequence, we expect the NBK to shift the policy into a more accommodative stance with another 50bps cut in 4Q20.”

The Bank’s next decision is scheduled for 7 September.

Last month, FocusEconomics panelists saw the base rate ending 2020 at 9.38% and 2021 at 9.07%. Our panelists are still factoring in the Bank’s latest decision, with a new Consensus Forecast to be published on 4 August.


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