Kazakhstan cut interest rates for a third straight time, forging ahead with its longest stretch of monetary easing in half a decade even after the International Monetary Fund cautioned it against loosening policy prematurely.
The National Bank of Kazakhstan on Friday lowered its benchmark to 15.75% from 16%. A slight majority of economists polled by Bloomberg predicted a decrease of half a percentage point.
In a statement accompanying the decision, policymakers didn’t provide any clear guidance on what they plan to do next. This year’s inflation forecast was improved slightly to 9.3%-10.3%, with a slowdown expected in 2024-2025.
“Further decisions on the base rate will depend on whether the actual dynamics of inflation correspond to its forecast trajectory,” the central bank said. “The need to achieve the 5% inflation target requires maintaining moderately tight monetary conditions in the medium term.”
Inflation has halved this year but remains just above 10%, a concern because the central bank had made further easing conditional on price growth slowing into single digits. Expectations among households are meanwhile headed in the opposite direction, with price growth anticipated at 18% over the next year, more than three times the official target.
In a report this week, the IMF urged authorities to wait with further monetary easing until “inflation is close to target and inflation expectations are well anchored.”
Inflation Threats
Kazakhstan’s new central bank governor, Timur Suleimenov, is mindful of the risks to inflation that’s already picked up slightly on a monthly basis. Policymakers have previously said they can’t yet lower their guard against threats to consumer prices, which remain under strain from strong domestic demand, fiscal stimulus and the potential of secondary effects from increases in fuel costs.
Speaking to lawmakers on Thursday in Astana, Suleimenov said inflation could slip below 10% in the coming months and then continue to decelerate but at a slower pace. The single-digit level is possible even before the end of this year, according to Prime Minister Alikhan Smailov.
But household expectations are turning for the worse after the removal of a cap on fuel prices and with utility costs on the rise. And although the government is planning to moderate spending growth, fiscal policy could still add pressure to inflation.
High Risks
“Despite the announced return to budget rules, risks of increased spending from the National Fund remain,” Barclays Plc economists including Zalina Alborova said in a report. “Pro-inflationary risks remain high.”
Kazakhstan recently tapped its oil fund to buy a stake in state-run KazMuNayGas National Co., raising an additional 1.3 trillion tenge ($2.8 billion) from the deal to transfer to the budget.
Rate cuts may still be on the table in the months ahead, especially after a bout of appreciation in the local currency. The tenge has gained more than 4% against the dollar since the last rate meeting on Oct. 6.
Without intervening directly in the currency market last month, the central bank has been selling dollars from the oil fund for transfer into the budget and expects to offload up to $1.4 billion this month.
The central bank, whose next policy decision is scheduled for Jan. 19, 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.
“Household inflation expectations have not trended down, despite inflation starting to fall,” Fitch Ratings said in a report this month. Kazakhstan’s fast inflation “partly reflects a less developed macroeconomic policy framework relative” to its peers, the company said.
Source : BNNBloomberg