The Atyrau bridge in Kazakhstan

Kazakhstan Monetary Policy June 2021

Kazakhstan: Central Bank keeps rates unchanged in June, but adopts more hawkish tone

The National Bank of Kazakhstan (NBK) decided to keep the base rate at 9.00% at its early June meeting, marking the seventh 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 decision came despite inflation remaining above the Bank’s 4–6% target since March 2020, and the Bank’s upward revision of its 2021 inflation forecasts. The NBK still expects external factors to tame inflation next year, bringing it close to the upper bound of the target range. In addition, the country only just saw a major lifting of restrictions on 3 June, making it premature to tighten policy and risk hampering the recovery. Lastly, a desire to synchronize monetary policy with the government’s loosened fiscal stance could potentially have influenced the decision to keep rates unchanged.

In terms of forward guidance, the Bank struck a more hawkish tone, stating that it would tighten policy if disinflationary pressures underperform its forecast. The NBK also underlined that the next decisions will be based on inflation dynamics and related expectations, and the economic recovery.

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

“We expect inflation to remain above the upper bound of the targeted range (4–6% YoY) by YE21 and to return to the targeted range by 2Q22. Moreover, we see substantial inflation risks from higher global food inflation and from tightening by major central banks and Kazakhstan’s main trading partners (Russia and China), which could cause inflation to remain above the upper bound for longer and keep the base rate higher for longer than we previously thought. We now see more risks to hiking the base rate in 2Q21 and 3Q21.”

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

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