Kazakhstan Monetary Policy February 2017


Kazakhstan: NBK slashes interest rates and now the scope for more cuts is limited

February 20, 2017

On 20 February, the National Bank of Kazakhstan (NBK) announced its decision to reduce the one-day repo rate—also known as the base rate—by 100 basis points from 12.00% to 11.00%. Although the decision to lower the monetary policy rate was widely expected, the size of the cut exceeded the 50-basis-point cut the markets had expected. The National Bank of Kazakhstan has now cut the monetary policy rate by 600 basis points since it started the easing cycle in May 2016. February’s cut follows last month's guidance that the Bank would ease its policy today provided that the decline in inflation continues and confidence in the tenge currency remains.

The Central Bank indicated that its decision stemmed from a rapid fall in inflation, which fell to within the target range of between 6.0% and 8.0% in January, along with falling inflation expectations, and the stabilization of the exchange rate of the tenge against the U.S. dollar. The Bank also highlighted that growth is improving on the back of recovering business activity and more favorable external conditions. Consequently, the NBK said that, “the new level of the base rate reflects the long-run balance between the price stability and the financial stability; therefore, the potential of the further easing of the monetary policy is limited.”

While providing this forward guidance, the NBK also commented that in the absence of external shocks, inflation should remain within its target range throughout most of 2017 and during the first half of 2018. The Bank also mentioned that it expects the Kazakh currency to strengthen against the greenback in the coming months, which should exert further downward pressure on consumer prices. The de-dollarization process is still ongoing and economic activity is expected to continue to recover. Nonetheless, the Bank recognized that risks to the inflation and growth outlooks persist. Some of these risks are related to the economy’s dependence on commodities and heightened volatility in commodity prices; a slow recovery in Kazakhstan’s main trading partners—particularly Russia—and a sudden decision by the government to increase public spending. The next monetary policy meeting is scheduled for 10 April.

The Consensus view among the analysts we surveyed is that the Central Bank will continue easing its monetary stance this year. FocusEconomics Consensus Forecast panelists see the base rate ending this year at 9.33%. Going forward, the Central Bank should continue trimming the interest rate, and our panelists see the rate ending 2018 at 8.25%.

Author:, Senior Economist

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Kazakhstan Monetary Policy Chart

Kazakhstan Monetary Policy February 2017

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

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