Kazakhstan Monetary Policy April 2017


Kazakhstan: Central Bank leaves the interest rate unchanged in April

April 10, 2017

At its 10 April monetary policy meeting, the National Bank of Kazakhstan (NBK) announced its decision to leave the one-day repo rate—also known as the base rate—unchanged. The decision was expected by the markets as the Bank had given guidance that it intended to slow the easing cycle, following its latest 100-basis-point cut in February. The NBK has cut the monetary policy rate by 600 basis points since it started its easing cycle in May 2016.

The Bank’s decision stemmed from inflation falling to 7.7% in March, which is within its target range of between 6.0% and 8.0%, the stabilization of households’ inflation expectations, growing business activity and stable domestic financial markets.

The Central Bank’s inflation forecasts from February showed that inflation is expected to remain within the target range this year and to fall to a narrower range of between 6.5%–7.0% toward the end of this year. The Bank has acknowledged, however, that food inflation remains high, but the strengthening of the tenge’s exchange rate—due to higher oil prices and a strong Russian ruble—has pushed down inflation related to imported goods. The Kazakh currency has been steadily strengthening since January 2016 and has been trading at an average rate of 315 KZT per USD since early March, up some 6% on a year-to-date basis. Moreover, preliminary data from the Central Bank showed that the share of deposits in foreign currency and in tenge were practically even, with foreign currency deposits at 50.7% in March.

Regarding economic growth, the Bank remains confident that activity continues to gradually improve, although it recognized that the output gap will remain negative until the third quarter of this year. The Central Bank expects GDP growth of 2.2% this year and of 4.7% in the first nine months of 2018, helped by growing private consumption, fixed investment and higher output of minerals resources.

In providing some guidance, the Bank stated that inflation will remain within the 6.0%–7.0% target range this year, provided that authorities maintain the current monetary conditions. This will allow it to continue easing the interest rate in the second quarter of this year. The next monetary policy meeting is scheduled for 5 June.

The Consensus view among the analysts we surveyed is that the Central Bank will continue easing its monetary stance this year. FocusEconomics Consensus Forecast panelists see the base rate ending this year at 9.50%. Going forward, the Central Bank should continue trimming the interest rate, and our panelists see the rate ending 2018 at 8.44%.

Author:, Senior Economist

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Kazakhstan Monetary Policy Chart

Kazakhstan Monetary Policy April 2017

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

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