The Atyrau bridge in Kazakhstan

Kazakhstan Monetary Policy March 2018

Kazakhstan: Market analysts are taken by surprise as Central Bank cuts the base rate for second time this year

At its 5 March monetary policy meeting, the National Bank of Kazakhstan opted to cut the one-day repo rate—also known as the base rate—by 25 basis points to 9.50%, with a corridor of plus or minus 1.0%. The move took market analysts by surprise; they had expected the Bank to hold the rate steady after an unexpected cut of 50 basis points at its first meeting of the year held on 15 January.

Falling inflation, which slowed more rapidly than expected, prompted the Bank to reduce the rate: Inflation dropped for the fourth consecutive month to 6.5% in February from 6.8% in January. A combination of slow-to-recover private consumption against declining real incomes, higher aggregate supply in the domestic market, and a drop in the price of imports amid slowing inflation in the economy’s trading partners have exerted downward pressure on prices. Moreover, reduced volatility in the tenge has also contributed to easing inflation to a lower level than expected. The Bank cited short-term risks that inflation might undershoot its target band of 5.0%–7.0% as inflation expectations decline, warranting the surprise move.

Inflationary pressures are expected to moderate into 2019, with a continued downward trend in households’ expectations of inflation. In the medium-term, inflation is projected to remain within the new target band of 4.0%–6.0% for 2019. Strong growth is expected again this year on the back of buoyant oil production. Economic activity remained robust in January, although it moderated somewhat from the previous month.

In terms of forward guidance, the Bank stated it would continue a policy of gradual easing while ensuring that neutral monetary conditions are preserved to ensure that inflation converges to the medium-term target corridor.

The next monetary policy meeting is scheduled for 16 April.

Kazakhstan Interest Rate Forecast

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