Kazakhstan Monetary Policy May 2016

Kazakhstan

Kazakhstan: Central Bank cuts the policy rate for the first time since its introduction

May 5, 2016

The National bank of Kazakhstan (NBK) held a monetary policy meeting on 5 May in which it decided to cut interest rates, against most expectations of leaving them unchanged. The NBK cut the one-day repo rate—also known as the base rate—by 200 basis points to 15.00%, which is the first cut to the rate since the NBK adopted it as the main monetary policy instrument in September of last year. The Central Bank also decided to lower the standing facilities—one to provide liquidity and the other to withdraw it—with a symmetric interest rate corridor of 1.0 percentage points. The previous rate corridor was set at 2.0 percentage points.

In its accompanying statement, the Central Bank said that the balance of risks between price stability and financial stability has improved since the last decision on interest rates in March. The Bank added that inflation expectations have declined and investors’ confidence in assets denominated in national currency improved.

While the tenge has recently stabilized, the Central Bank recognized that currency weakness has fed into inflation, sending annual consumer price growth to 16.3% in April. However, the pass-through effect from the weak currency to consumer prices is fading gradually. The Central Bank added that a survey conducted in April showed that households’ inflation expectations fell notably. According to the survey results, the proportion of households expecting an increase in inflation in the next 12 months declined from 61.6% in January to 40.5% in April. The NBK also stated that demand-side inflationary pressures remain absent as private consumption is weak due to low real wages and government spending is slowing as a result of fiscal policy adjustment. Finally, the Central Bank pointed out that it expects inflation to fall in the second half and to end the year within its target range of between 6.0% and 8.0%.

FocusEconomics Consensus Forecast panelists expect the Bank to cut interest rates later in the year and see the base rate ending 2016 at 12.06%. For 2017, the panel sees the base rate ending the year at 9.50%.


Author:, Senior Economist

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Kazakhstan Monetary Policy May 2016

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


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