Kazakhstan: National Bank of Kazakhstan cuts base rate in July
NBK surprises markets with another cut: At its meeting on 24 July, the National Bank of Kazakhstan (NBK) continued its easing cycle—unexpectedly started at June’s meeting with a 100 basis point cut—lowering the base rate by 25 basis points to 16.75%. The decision again came as a surprise for the markets, though this time to a lesser degree given the smaller-sized cut.
Sustained decline in inflation backs the cut: The Central Bank’s decision was primarily driven by a sustained decline in inflation, which had fallen for nine consecutive months through June. Regulated utility prices—which had been the Bank’s primary concern in previous meetings due to the liberalization of utility tariffs—also declined in annual terms in June. Moreover, the NBK has announced an agreement with the state-owned Baiterek Holding to direct its financing mainly toward investment projects, thereby reducing the impact of this stimulus on consumer demand and, consequently, on upside inflationary pressures.
Further easing hinges on declining inflation: The Central Bank said that the future path of the base rate will be data-dependent, but highlighted the need for a tight monetary stance to bring inflation to its 5.0% target. Meanwhile, following the meeting, Governor Suleimenov said that inflation would need to decline to 9.0–9.5% for the policy rate to be reduced to 16.00%. Most of our panelists expect the base rate to reach that level by the end of this year, though the Consensus Forecast for inflation in December suggests upside risks to this projection.