The Atyrau bridge in Kazakhstan

Kazakhstan Monetary Policy June 2018

Kazakhstan: Central Bank cuts the base rate for the fourth time this year

At its 4 June monetary policy meeting, the National Bank of Kazakhstan opted to cut the base rate by 25 basis points to 9.00% with a corridor of plus or minus 1.0%. This marks the fourth rate cut of the year and follows three cuts of the same magnitude: the first in January, the second in March and the third in April.

The Bank’s decision came against the backdrop of decelerating inflation since March; inflation edged down to 6.2% in May from 6.5% in April due to an across-the-board decline in prices for food and non-food goods, and for services. The series of cuts has been aimed at boosting economic activity, which grew at a more moderate pace of 5.0% year-on-year in January–April compared to 5.5% in January–March. While prices have been restrained by greater aggregate supply in the domestic market and a fall in the price of imports due to slowing inflation in the economy’s trading partners, private consumption has started picking up against sustained growth in real incomes and an expansion in credit, which will intensify inflationary pressures. The Bank noted, however, that inflationary expectations remain sensitive to various shocks, such as the exchange rate shock in April when the tenge depreciated following new U.S. sanctions on Russia.

In terms of forward guidance, the Bank noted the reduced potential for further cuts in the base rate this year due to a slowdown in the downward trend in inflation and the increased possibility of inflationary risks in the medium term. While monetary conditions remain neutral for now to ensure that inflation converges to the medium-term target corridor, the Bank stated that “monetary conditions might get tightened” with the aim of further reducing inflationary expectations. The next monetary policy meeting is scheduled for 9 July 2018.

Kazakhstan Interest Rate Forecast

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