Kazakhstan: Central Bank keeps rates unchanged in April, despite hikes by regional peers
The National Bank of Kazakhstan (NBK) decided to keep the base rate at 9.00% at its 26 April meeting, marking the sixth consecutive hold, after having cut it by 50 basis points in July 2020. Moreover, the rate corridor was kept at plus or minus 1.0 percentage point.
The Bank’s decision came amid a pro-inflationary environment: Despite an ease in price pressures in March, inflation was still above the Bank’s 4–6% target. Moreover, inflation expectations rose in March, while the government’s expansionary fiscal stance could stoke price pressures further, which left little room for a rate cut. Moreover, economic conditions were upbeat in March, lessening the need for further stimulus. However, the NBK refrained from raising rates, likely to reinforce the economic recovery, unlike central banks in regional neighbors Belarus, Russia and Ukraine, which have all hiked rates in recent months.
Looking ahead, the Bank maintained a cautious tone, stating that it would take the next decision based on its May–June 2021 forecasts, but it did highlight several upward risks to the inflation outlook. Our Consensus is for the policy rate to remain close to its current level until the end of 2021, although recent developments could have tilted the balance slightly in favor of a tighter stance.
On the outlook, Artem Zaigrin at SOVA Capital added:
“We see the tone of NBK’s statement as neutral with hawkish notes. Both domestic and external drivers are pushing for a tight policy, such as the strong domestic recovery and global rise in inflation due to supply disruptions. These risks should lead to an acceleration in non-food inflation, while the speed of the slowdown in the food segment could be quite slow. We expect inflation to remain above the upper bound of the targeted range (4-6% YoY) by YE21. Moreover, we see substantial inflation risks from the amendments to the republican budget, which could cause inflation to remain above the upper bound for longer and could require keeping the base rate higher for longer than we previously thought.”
The Bank’s next policy rate decision is scheduled for 7 June.