Kazakhstan Monetary Policy February 2016


Kazakhstan: National Bank of Kazakhstan raises interest rate to support currency

February 1, 2016

The National Bank of Kazakhstan (NBK) decided to hike the one-day repo rate—its main monetary policy rate—from 16.00% to 17.00% at its policy meeting on 1 February. In addition, the Bank restored standing facilities—one to provide liquidity and the other to withdraw it—with a symmetric interest rate corridor of plus/minus 2.0 percentage points. According to the NBK, this decision is a continuation of the Bank’s measures to improve monetary policy and achieve its primary tasks, which are the stability of the financial sector, restoration of confidence in the national currency and creation of the preconditions for the formation of the tenge yield curve.

The Bank added that all of the actions it takes are aimed at strengthening confidence in both the tenge and the Kazakh banking system in order to change investors’ preferences for Kazakh assets denominated in the local currency. Moreover, monetary authorities stated that the Central Bank will continue to, “adhere to a free floating exchange rate regime, […] taking into account the dynamic of world prices and fundamental factors.”

The NBK decided to let the tenge to free float in August 2015 as part of a shift to an inflation targeting regime and introduced the one-day repo rate—also known as the base rate—as the monetary policy rate on 2 September 2015 and set it at 12.00%. The Bank raised the interest rate further to 16.00% on 2 October, where it stood until the meeting on 1 February. The Bank’s decision to increase the monetary policy rate in February came after monetary authorities delayed their meeting for a second time on 3 December, arguing that the local money market was unable to set an adequate interest rate due to risks that funds in the country could be used for foreign exchange and interest rate arbitrage. This month, the Central Bank scheduled a monetary policy for 14 March.

Kazakhstan is an economy that neighbors Russia and China, is the largest oil producer among the former Soviet Republics after Russia and has been severely hit by the plunge in oil prices and the nosedive in Russia’s currency. Moreover, the National Bank of Kazakhstan saw a major overhaul last year, when President Nursultan Nazarbayev replaced the former Central Bank Governor with Daniyar Akishev. The President also announced sweeping plans to offer stakes in some of its largest state-owned enterprises to investors—including the national oil, railway and telecommunications companies—in preparation for eventual stock market listings. Despite these changes, the economy continues to slow and the national currency continues to plummet, thus fueling inflation. Due to the devaluation, the tenge ended 2015 at 341 KZT per USD, which represented an 86.3% loss in value compared to the end of 2014. That said, despite market volatility and a new plunge in oil prices at the beginning of the year, the tenge has stabilized in recent days, mainly due to the Central Bank’s action to lift interest rates. Should oil prices recover in the coming months, the tenge is likely to stabilize

FocusEconomics Consensus Forecast panelists expect the Bank to cut interest rates later in the year and see the base rate ending 2016 at 11.06%. For 2017, the panel sees the base rate ending the year at 9.43%.

Author:, Senior Economist

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Kazakhstan Monetary Policy Chart

Kazakhstan Monetary Policy February 2016

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

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