The Atyrau bridge in Kazakhstan

Kazakhstan Monetary Policy April 2018

Kazakhstan: Central Bank cuts the base rate by 25 basis points for the third time this year

At its 16 April monetary policy meeting, the National Bank of Kazakhstan decided to cut the base rate by 25 basis points to 9.25% with a corridor of plus or minus 1.0%. This was the third cut this year, following two cuts of the same magnitude, first in January and again in March. The cut surprised analysts, who had expected the rate to be held steady.

Inflation has been hovering at multi-year lows, which coupled with falling inflationary expectations, has opened up space for the Bank to cut rates to boost growth following last year’s turnaround from a slowdown induced by lower oil prices in 2015–2016. In March, inflation inched up to 6.6% from 6.5% in February, while annual growth in economic activity creeped down to 5.5% from 5.6%. Despite slightly higher inflation in March, prices have been subdued by slowly recovering private consumption amid declining real incomes, higher aggregate supply in the domestic market, and a drop in the price of imports owing to slowing inflation in the economy’s trading partners. Reduced volatility in the tenge has also eased inflation. The Bank stated that there is a short-term risk that inflation might undershoot its target band of 5.0%–7.0% as inflation expectations decline, prompting its latest move.

Inflationary pressures are expected to moderate into 2019, with a continued downward trend in households’ expectations of inflation. In the medium-term, inflation is projected to remain within the new target band of 4.0%–6.0% for 2019.

In terms of forward guidance, the Bank stated it would continue a policy of gradually reducing the base rate while ensuring that neutral monetary conditions are maintained to ensure that inflation converges to the medium-term target corridor. The next monetary policy meeting is scheduled for 4 June 2018.

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