Kazakhstan Monetary Policy August 2016


Kazakhstan: NBK keeps rates on hold and expects inflation to begin to fall in October

August 15, 2016

At its policy meeting on 15 August, the National Bank of Kazakhstan decided to maintain the one-day repo rate—also known as the base rate—at 13.00%. The decision, which market analysts had expected, followed an unexpected 200-basis-point cut in July. The Central Bank indicated that, “the balance of risks to inflation has barely changed since [the] previous decision on the base rate, but the impact of different multidirectional factors on inflation has increased. Subsequent decisions on the base rate will depend on, among other things, whether the actual and forecast inflation are relative to the target level.” The Bank’s decision also reflects its expectations that inflation will reach its target range of 6%–8% at the end of 2017.

The Central Bank stated that, due to a rapid increase in prices in the fourth quarter last year, elevated inflation has persisted through this year and was particularly high in July as seasonal factors pushed prices even higher. Nonetheless, it expects inflation to fall significantly in October as the base effect fades. In addition, the Bank commented that the drop in oil prices in July had prompted the Kazakh currency to weaken, but it expects second-round effects on inflation from the weakening of the tenge to be limited.

The Bank signaled that the current interest rate level is still attractive to foreign and resident investors, encouraging them to hold assets denominated in the local currency. According to the monetary authority, July’s decision to lower the interest rate has spurred banks to lower market rates and gradually expand credit. As economic agents are slowly adapting to the new credit conditions and since consumer spending remains weak, the Central Bank sees low risks to inflation from domestic demand. Nicolaie Alexandru-Chidesciuc, Vice President and EMEA Analyst at JP Morgan, stated:

“We believe that the NBK will continue policy rate cuts later this year and likely in 2017 as well. Inflation is likely to fall sharply starting October and KZT may strengthen due to increased oil output. Therefore, NBK will likely be able to continue to ease monetary conditions.”

The Bank concluded that a further cut in the main monetary policy rate will depend on the evolution of inflation, the exchange rate and inflation expectations. The next policy meeting is scheduled for 3 October.

The Consensus view among the analysts we surveyed is that the Central Bank will continue easing its monetary stance in the coming months and next year. FocusEconomics Consensus Forecast panelists see the base rate ending 2016 at 12.38%. For 2017, the panel sees the base rate ending the year at 9.00%.

Author:, Senior Economist

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Kazakhstan Monetary Policy Chart

Kazakhstan Monetary Policy August 2016 1

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

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