Halyk Finance advises the National Bank not to change the base rate in Kazakhstan

Halyk Finance has advised the National Bank of Kazakhstan to take a pause in the cycle of decreasing the base rate. The latest survey published on the company’s website, says that the broker has revised its attitude toward the key indicator of the country’s monetary policy.

According to the company’s analysts, in early November they thought that it would be a good idea to reduce the base rate to 15% by the end of this year due to the assumption that the inflation rate would reach 10% year-on-year in December. In addition, the experts didn’t rule out that the price surge might be significantly slowed down.

However, everything changed when the experts came to learn that the National Fund of Kazakhstan obtained more power in terms of spending. For instance, now it can buy shares of KazMunayGas, a national company controlled by the holding Samruk Kazyna, with a discount in order to earn more money for the state budget. The government plans to spend about $2.8 billion for this purpose by the end of this year. As a result, the amount of annual transfers from the National Bank to the budget is expected to grow from $8.6 billion to $11.4 billion.

«As we said many times before, the procyclical budgetary policy of the country’s government aimed at bringing more money into the national economy from the National Fund amid high oil prices, leads to growth of inflation as the National Bank is forced to keep its rate as high as possible in order to mitigate inflationary pressure from excessive fiscal incentives for the economy,» Halyk Finance said in the survey.

The company criticized the government’s decision to expand the power of the National Fund. According to the company’s analysts, the new approach will lead to growth in budget spending which in turn can lead to acceleration of inflation and have a negative impact on market mechanisms because of significant discount to real prices.

Currently, the National Bank’s base rate is at 16%. The indicator was at 16.75% over the period from December 2022 to August 2023 and then it was lowered on two occasions. During its last meeting on the base rate, the regulator said that further lowering of the rate is unlikely to happen this year. The next meeting on monetary policy is scheduled for November 24.

In October, the inflation rate in Kazakhstan reached 10.8% year-on-year. The rate was 20.3% last year. After reaching a peak in February of 21.3%, the price surge has been gradually declining.