National Bank of Kazakhstan maintains base rate at 14.75%

The building of the National Bank of Kazakhstan. Photo credit:
The building of the National Bank of Kazakhstan. Photo credit:

The National Bank of Kazakhstan has decided on April 12 to keep the base rate at 14.75% per annum, reports Kazinform News Agency citing the bank’s press service.

Inflation and inflationary pressures

“Annual inflation in February and March continued to decrease, albeit at a slower pace. Inflation expectations have slightly decreased but remain at a relatively high level. The external inflation background continues to be neutral with the ongoing trend of declining grain prices in global markets. Within the domestic economy, inflationary pressure persists due to robust internal demand and unanchored inflation expectations,” reads the bank’s official statement.

The National Bank considers it necessary to “maintain moderately tight monetary conditions” to achieve the inflation target of 5%.

“In the current circumstances, there is still limited room for easing monetary policy. This space will begin to form with the stable reduction of the stable part of inflation,” it said.

Kazakhstan’s annual inflation in March went down to 9.1%, driven by what the bank deemed “moderately tight monetary policy and declining world grain prices.”

“Monthly inflation slowed down in March to 0.7% after a spike in the previous month (1.1%), forming above the average historical values (0.6%). A similar dynamic is observed for the indicators of core and seasonally adjusted inflation - a significant reduction in March after a sharp acceleration in February,” said the bank.

Although inflation expectations are on the decline, they are still high due to rising prices for food, housing and communal services, and gasoline.

International economic environment

“The external inflation background is neutral. The cost of food in global markets in March shows a slight increase, mainly due to rising prices for vegetable oils. Grain prices continue to decline against the background of the realization of the harvested crop in exporting countries and the uninterrupted operation of maritime trade routes,” said the bank.

The bank also noted that oil prices are slightly above the base scenario, averaging $83 per barrel since the beginning of the year, which will favorably affect Kazakhstan's trade balance. This is due to the extension of the OPEC+ agreement, military actions in the Red Sea, and the suspension of several refineries in Russia.

However, high oil prices may lead to an increase in the external inflationary background.

External monetary and credit conditions remain tight. As a result, global inflation is slowing down but still remains above target levels in many countries. 

"In the European Union, the trend towards slowing inflation continues against the backdrop of the European Central Bank's restrictive policy. Despite expectations of weaker economic growth indicators this year, the ECB remains committed to returning inflation to its target value and intends to maintain restrictive monetary and credit conditions for this purpose," said National Bank Governor Timur Suleimenov in an April 12 statement. 

Inflation in the United States also remains above its 2% objective. 

"The Federal Reserve notes that inflation in the United States still remains high. In March, the annual inflation rate increased to 3.5%, accelerating for the second consecutive month. According to the Fed's rhetoric, the current monetary and credit conditions will continue going forward. In Russia – a key trading partner of Kazakhstan, inflation in March remained at 7.7%. According to the statement from the Russian regulator, achieving the inflation target involves a prolonged period of maintaining tight monetary and credit conditions," said Suleimenov.

Economic growth

Economic growth in January and February is estimated at 4.2% year-on-year, within the National Bank's forecast. The dynamics of retail trade indicators, volumes of consumer credit issuance, and the dynamics of the business activity index indicate the maintenance of robust internal demand in the economy.

“Pro-inflationary risks are conditioned by the continuation of reforms in the area of regulated prices, the consequences of abnormal floods in Kazakhstan, and the uncertainty associated with the volumes of budget expenditures needed for their elimination,” the bank said.

The next decision on the base rate is scheduled for May 31.

Currently reading