Kazakhstan’s central bank left its base rate unchanged at 9.25 percent, saying its concern over a deterioration of external factors did not materialize in the last 6 weeks and in the absence of shocks inflation this year should remain close to the upper boundary of its inflation target.
It its previous policy decision from Jan. 14, the National Bank of Kazakhstan (NBK) warned it may raise its rate today if there was upward pressure on inflation from volatile oil markets and import prices from Russia.
In October last year the NBK raised its rate by 25 basis points and monetary conditions are currently neutral.
However, after a run-up in January, oil prices have stabilized since mid-February and Kazakhstan’s headline inflation rate fell further to 4.8 percent in February, below the middle point of NBK’s 2019 target corridor of 4.0 to 6.0 percent, from 5.2 percent in January and 5.3 percent in the previous 3 months.
NBK has been lowering its inflation target in recent years, from 6.0-8.0 percent in 2016/17 to 5.0-7.0 percent in 2018 and 4.0-6.0 percent for this year, targeting inflation below but close to 4.0 percent by the end of 2020 and following years.
Along with the lower inflation target, the central bank said inflationary expectations had gradually declined after a surge in late 2018 and were down to 4.7 percent for the next 12 months.
While the probability of a deterioration of the external situation had declined, the central bank cautioned the nature of a slowdown in inflation in February was unstable, with food inflation accelerating to 6.6 percent in February from 5.1 percent in December 2018.
At the same time, economic growth has slowed this year, with the short-term indicator for January showing a 2.9 percent rise, down from 4.7 percent in 2018.
But household consumption and consumer lending is improving and expected to continue to grow this year, supported by fiscal incentives, but the impact on inflation is not seen as high and doesn’t require an immediate monetary policy response, the central bank said.
Last month Kazakhstan’s president, Nursultan Nazarbayev, accepted the resignation of NBK’s chairman, Daniyar Akishev, and nominated cabinet minister Erbolat Dossaev, 48, as his replacement as part of a broader reshuffling of the cabinet.
The change in NBK leadership follows Nazarbayev’s call on the central bank and the government cabinet to boost economic growth to 5 percent this year from an estimated 4.1 percent in 2018.
Kazakhstan’s economy is in the midst of a major transformation that aims to reduce the footprint of the state and the economy’s reliance of oil following the fall in oil prices in 2014, which hit growth sharply in 2015 and 2016.
Akishev, who took over as NBK chairman in 2015, had focused on adopting a floating exchange rate after using a dollar peg for decades and introducing an inflation targeting regime.
In the first 9 months of 2018 Kazakhstan’s gross domestic product grew 4.2 percent and the International Monetary Fund has forecast average growth of 3.7 percent in 2018, down from 4.0 percent in 2017, and growth of 3.2 percent in 2019 and 2020.
The exchange rate of the tenge, which often moves in synch with the Russian ruble, fell steadily last year but has stabilized in the last month.
Today the tenge was trading at 376.6 to the U.S. dollar, down 0.2 percent this year.
Kazakhstan holds rate steady after inflation eases