Kazakhstan Regulator Is Expected to Tighten Its Monetary Policy

The high rate of inflation in Kazakhstan is an obstacle to decreasing the value of money. According to a survey by the Finance Control Agency, the monetary policy of the National Bank of Kazakhstan might be tightened in the following twelve months. 

Among factors that contribute to the increase in the inflation rate are rebounding of a consumers’ appetite, surging tariffs for electricity and fuel as well as a high rate of inflation in countries Kazakhstan trades with. The Agency for Regulation and Development of Financial Market has asked several experts what they think the National Bank is going to do and they said that almost everything indicates that the regulator is going to tighten its monetary policy.

«To make monetary conditions softer, Kazakhstan needs the inflation rate to get back to its target corridor and stay at 3-4% level for long. Currently, it’s not true; therefore, it’s likely the base rate won’t decrease, at least in the short-term period,» the agency reported.

The effective base rates in the country now are about 1.5-2%, which is relatively low. It stimulates the economy even though the well-balanced base rate calculated by the regulator is almost two times higher – 3.5-3.7%.

The TONIA rates are primarily staying inside the corridor of a base rate. On the other hand, the high rates in Kazakhstan are being neutralized by a huge amount of cheap money from the state, which wants to support the economy.

«The effective rates for mortgages are next to zero (7-20-25 state program) or relatively low. For example, it’s about 6% for businesses, which were hit by the pandemic; 4% for car loans, which is similar to what we can see in some developed countries with a low inflation rate,» the survey said.

Despite the strong demand for cheap money from the government once the economy has started to rebound, the number of incentives should get down. Those measures include shrinking of financing and subsidizing of effective rates. The relationships between lenders and borrowers should be based on free-market principles, while the government has to support the economy with nontariff regulations only.

As of April 2021, the inflation rate in Kazakhstan reached 7%. In eight regions, this rate has been even higher; the leaders are the Aktobe region (8%), Mangystau (7.9%) and the East Kazakhstan region 7.6%.