Kazakhstan’s central bank lived up to its guidance from July and raised it base rate by 25 basis points to 9.25 percent as inflation is above expectations and said future policy decisions will be based on how inflation is expected to develop with respect to the bank’s 4.0 to 6.0 percent target corridor.
The rate hike by the National Bank of the Republic of Kazakhstan (NBK) follows a 25-basis-point rate cut in April and brings the rate back to the level seen from October 2018 to March 2019.
Kazakhstan’s inflation rate declined to 5.2 percent in August from 5.4 percent in July but the central bank expects inflation to rise toward the top of its target corridor at 5.7 to 5.8 percent by the end of this year due to robust consumer demand, price increases on certain foods and the waning effect of lower tariffs on regulated services, which it said creates the risk of inflation exceeding the upper bound of the target corridor.
Raising the base rate now will help increase the attractiveness of the tenge currency, reducing the risk of higher inflation from import prices, NBK said, adding during 2020 inflation is then expected to decelerate and settle within its target corridor.
Economic growth in the first 7 months of the year is forecast at 4.2 percent by the NBK, which creates inflationary pressure and is above expectations.
For the full year, NBK forecast growth of 3.8 percent before slowing to 3.5 percent in 2020, with expanding household consumption and growth in investment the main drivers. Economic growth will then ease due to weaker fiscal stimulus and net exports.
The central bank added that during the next week it will release an inflation report that will contain a detailed analysis of the main macroeconomic factors affecting inflation to increase transparency and improve its communications.
Kazakhstan’s tenge firmed in the wake of the rate hike to 384.5 to the U.S. dollar but has depreciated since steadily since September 2018 and is 2.3 percent down since the start of 2019.
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