Kazakhstan went ahead with its first interest-rate cut since 2020 even after the tenge weakened following a bout of currency depreciation in neighboring Russia.
(Bloomberg) — Kazakhstan went ahead with its first interest-rate cut since 2020 even after the tenge weakened following a bout of currency depreciation in neighboring Russia.
The central bank on Friday lowered its benchmark to 16.5% from 16.75%, after keeping it within a quarter-percentage point of the highest on record. Policymakers signaled additional reductions are likely, but fiscal stimulus could limit room for monetary easing.
“A gradual decrease in the base rate will continue should there be a further rhythmic slowdown” in inflation, they said in a statement. “Pauses in the reduction of the base rate aren’t ruled out to allow for the accumulation of data and to monitor risks.”
The National Bank of Kazakhstan is ending a policy pause that’s been in place for five straight meetings after inflation decelerated every month since February, turning rates positive when adjusted for prices.
But a period of steep declines in the ruble, the currency of Kazakhstan’s biggest trading partner, has complicated the calculus for the central bank by presenting a new threat to inflation given the extensive economic and commercial ties between the two countries.
Though the central bank believes the correlation between the tenge and the ruble has grown a lot weaker, the Kazakh currency still depreciated as a result. It’s among the world’s 10 worst performing currencies in the world over the past two weeks.
Inflation Goals
The Kazakh government has made it a priority to curb price growth and wants to cut inflation by half from last year’s 20.3%, according to Premier Alikhan Smailov. In annual terms, it slowed to 14% in July, down from a peak of more than 21% in February.
The central bank is targeting inflation near 5% in the medium term and said its goal could be achieved already by the end of 2025. It now sees price growth at 10%-12% in 2023, compared with its earlier forecast for 11%-14%.
Central Asia’s largest oil producer is moving past currency turmoil and an inflation spiral following the Russian invasion of Ukraine in February 2022. The Kazakh central bank raised rates sharply when the war began, delivering a total of six hikes last year.
Although exposed to risks in the region, Kazakhstan is the neighbor deemed least vulnerable to flows of Russian capital. In a sign of further decoupling from Russia, Kazakhstan’s central bank said on Monday authorities are suspending the mandatory requirement for state-run companies to sell a portion of foreign-exchange revenues in the domestic market.
The central bank, whose next policy decision is scheduled for Oct. 6, also said that its rates corridor — formed from the overnight deposit and lending rates — was kept at plus or minus one percentage point around the benchmark.
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