Kazakhstan Raises Base Rate to 9.25%

Kazakhstan’s National Bank has raised the base rate from 9% to 9.25% in response to the risk of inflation.

As the regulator noted, the tightening of the monetary policy is intended to prevent the inflation rate from getting into freefall and keep it at the target corridor of 4-6% in the following 2022. National Bank hopes that the new rate will help assets nominated in tenge to keep their attractiveness and avoid negative effects.

«The decision is based on realized risks of inflation and negative economic factors, which push inflation sky high. The inflation rate is higher than forecast and prices grow too fast. Among factors stimulating inflation are rapid economy rebounding and a high level of consumer activity,» the bank said in a statement.

The rising demand has made inflation expectations too high, which pushed the regulator to step up. At the end of June 2021 annual inflation was 7.9% which is higher than in May (7.2%). It is unusual for the inflation in Kazakhstan to rise in June but it happened.

According to the regulator, the inflation expectations among the population are also unstable. During a special survey, a historically high number of respondents (59%) said that they have noticed prices soaring. About 87% of respondents stated that they have noticed how sharp food product prices have been rising.

The next review of the base rate is planned for September 13, 2021.

The regulator’s decision wasn’t a big surprise for experts because National Bank many times warned it will raise the base rate if the inflation rate would soar. According to PricewaterhouseCoopers, which interviewed several experts, the base rate might be reduced to 8.6% within a year, 7.8% over three years, and 7.2% in five years.

Even though on June 7, during the previous base rate reviewing session, the regulator preferred to not change it and keep it at the level of 9%, the rate has had a tendency to get reduced since July 2016, when the base rate reached 15%. In February and July 2020 the rate was reduced to 9.25% and 9% respectively.