Real interest rate hits zero in Kazakhstan

The rate can turn into a negative one in the months to come

The AFK’s (Association of Financiers of Kazakhstan) research center has presented an overview of interest rates that are used in Kazakhstan this month. For the first time since 2016, the real interest rate has hit zero and might reach a negative point in the coming months.

At the same time, experts believe that the monetary conditions in Kazakhstan are quite good due to the same level of the inflation rate and the base interest rate.

“At the equilibrium level of Kazakhstan’s economy of 3-4%, the real interest rate is now about zero (negative inflation). That’s happened for the first time since 2016. The rate may reach negative territory in the coming months,” the association said.

“The real interest rates in some segments of the corporate and retail lending markets have already fallen into a negative zone. For example, the real interest rates in the industrial sector, agriculture and the sector of communication are about -0.4%, -2.7% and -4.8% respectively. In the sphere of mortgages, the rate is -5.8%,” the AFK reported.

According to the association, the volume of corporate lending has dropped dramatically due to the geopolitical crisis.

“Over the period from January to May 2022, the volume of bond offering reached $132.2 million, which is six times less than the same period last year ($787.9 million),” experts from the AFK said.

Moreover, they argue that if the regulator decided to raise the base rate, it’s unlikely that it will make any difference to the inflation. For example, almost all experts who were respondents to research by the AFK said that they won’t expect the inflation rate to grow. They also noted that the inflation would decline to 11.25% in 12 months.

The National Bank of Kazakhstan has decided to keep the base rate the same – 14%. The decision is based on the current balance of risk of inflation and updated forecasts by the regulator.  

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