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Kazakhstan Monetary Policy September 2020

Kazakhstan: Central Bank keeps rate at 9.00% in September

The National Bank of Kazakhstan (NBK) decided to keep the base rate at 9.00% at its 7 September meeting, having cut it by 50 basis points at the previous meeting in July. Moreover, the interest rate corridor was kept at plus or minus 1.5 percentage points.

The Bank’s decision was driven by the need to counter inflationary pressures over the short and medium term. In its communiqué, the NBK commented on various upside risks to inflation, including increased volatility in financial markets—following heightened rhetoric regarding further sanctions towards Russia—and expectations of feeble demand for oil, which will exert downward pressure on the tenge. Accordingly, the current rate should dampen price pressures, ideally keeping inflation within the target range of 8.0–8.5% by the end of 2020, as forecast in July’s meeting.

Going forward, the Bank maintained a neutral stance, stating that “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, the NBK seems to be looking out for incoming inflationary pressures, as external risks to the currency emerge from increasing volatility in the geopolitical landscape.

Commenting on the risks to the currency, Artem Zaigrin, chief economist at SOVA Capital, noted:

“Russia-US tensions by the end of the year could pose significant headwinds for the currency, as the ruble’s weakness could filter into the tenge due to the close trade ties between the two countries. A sudden stop in FDIs into energy projects from Kazakhstan’s largest investors poses a risk to the tenge as well.”

The Bank’s next policy rate decision is scheduled for 26 October.

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