The Atyrau bridge in Kazakhstan

Kazakhstan Monetary Policy July 2021

Kazakhstan: Central Bank hikes rate by 25 basis points in July

At its meeting in late July, the National Bank of Kazakhstan (NBK) decided to hike the base rate by 25 basis points to 9.25%, keeping the corridor at plus or minus 1.0 percentage point. The move came after eight consecutive decisions to hold.

The decision was aimed at containing inflation, which has been consistently moving further above the Bank’s 4.0%–6.0% target range since March 2020, hitting a four-year high of 7.9% in June this year. In addition, the Bank stressed that inflation was running ahead of its forecasts, while high expectations pose a further upside risk. The Bank noted that the move was mainly aimed at cooling demand-side inflation, fueled by recovering consumer spending, rather than taming supply-side pressures on which monetary policy would have a more limited impact.

In terms of forward guidance, the Bank maintained its hawkish tone, suggesting a possible hike in September if the month’s forecast revisions show an increase in pro-inflationary factors. Notably, the Bank mentioned a low base effect in food prices and pent-up demand as two key possible drivers of an acceleration in inflation.

On the outlook, Artem Zaigrin, chief economist at SOVA Capital, said:

“We see the tone of the NBK’s statement as hawkish given its wording on possible further actions in September once the NBK reviews its forecasts. The NBK is already expecting a further acceleration in inflation in H2 2021 following the low base effects of 2020, which could see the expected trajectory reach the targeted range of 4.0%–6.0% yoy only by mid-2022. The NBK took a smaller step than we expected mainly due to Covid-19, leading to risks of a slower economic recovery in the face of lockdowns. We think the NBK could tighten its policy rate another 25 basis points in September to 9.5% and end the rate-hiking cycle there.”

The Bank’s next policy rate decision is scheduled for 13 September.

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