The Atyrau bridge in Kazakhstan

Kazakhstan Monetary Policy October 2020

Kazakhstan: Central Bank keeps rates unchanged in October

The National Bank of Kazakhstan (NBK) decided to keep the base rate at 9.00% at its 26 October meeting, marking the second consecutive hold, after having cut it by 50 basis points in July. Accordingly, the rate corridor was kept at plus or minus 1.5 percentage points.

The Bank’s decision came at a time of heightened uncertainty brought by surging Covid-19 cases in important trading partners such as Russia and the EU. Moreover, in its communiqué, the Bank mentioned that annual inflation was below its expectations in September, stating that disinflationary factors continued to take hold. However, there are also short-term inflationary risks stemming from food supply shocks and higher prices for gasoline. Consequently, the Bank likely postponed the decision to cut rates to avoid igniting upward price pressures. Protecting the currency was also a motivation, with the NBK stating that “the persistence of uncertainty and the increased probability of external risks limit the potential for lowering the base rate”.

Going forward, the Bank maintained a dovish stance, stating that it would “assess the potential for the rate cut, given the achievement of the inflation target in 2021”. As such, it seems that the NBK will be looking for an opportunity to cut rates once uncertainty eases and conditions are more favorable to an accommodative policy. Most panelists see some easing by end-2021.

Commenting on the outlook, Artem Zaigrin, chief economist at SOVA Capital, noted:

“We think authorities might not have the opportunity to start normalizing the base rate before there is clear evidence of inflation stabilizing after passing through the above inflationary shocks. We believe such an option could be available starting in 2Q21, when inflation approaches its target range of 4-6% YoY.”

The Bank’s next policy rate decision is scheduled for 14 December.

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