On September 5, 2022, the National Bank of Kazakhstan decided to keep the base rate at 14.5% with a percentage corridor of +/– 1.0 p.p The standing lending facility rate is now 15.5%, while the standing facility rate for liquidity withdrawal is 13.5%. The regulator stated that the decision is based on the current economic situation.
The National Bank says that the external pressure is still in place due to price increases in the logistic industry, high inflation in countries that are trading partners for Kazakhstan, and the weakening of the Kazakhstani tenge against the Russian ruble.
«Although global food prices are going down, fiscal incentives in Kazakhstan prevent food prices from following global markets and place additional pressure from the side of demand in a middle-term perspective,» the regulator said.
The bank believes that the high inflation rate reflects the ongoing adjusting of domestic prices to the external price shock that doesn’t require the monetary policy to be tight now. Moreover, the positive effect of the previous increase of the base rate earlier this year hasn’t been shown fully yet. This means that any future correction of the base rate will require a preliminary assessment. The current base rate is enough to provide the financial market with stability and to support the businesses’ tendency to save money, the regulator said.
In August, the annual price increase accelerated to 16.1%.
The National Bank increased the base rate four times in 2022. The last one was announced on July 25, when the rate was increased to 14.5% with a percentage corridor of +/– 1 p.p. while the inflation rate was at 15%. The regulator explained this increase by inflation that jumped over the forecast trajectory.
According to some experts, the base rate increase has little or no effect on the inflation rate, especially in the long run. Analyst of the Association of Financiers of Kazakhstan Zarina Skripchenko expressed doubt that the inflation pressure might be lowered with help of a base rate, the Interfax news agency reported. In Kazakhstan, inflation is always driven by demand problems: supply chain disruptions, rising production costs due to high commodity prices or shortage of specific items.
Andrei Maslov from Finam agrees with this thesis. Moreover, he thinks that the increase in the base rate can negatively affect economic growth because of the higher costs of borrowing funds. The rate increase can also affect the demand and change the behavior of regular consumers. Kazakhstan’s economy is going to slow down by the end of 2022, according to Maslov. For example, even though the country’s GDP rose by 4.6% in the period from January to May 2022, over the first six months of the year combined the growth was just 3.4%.
On July 28, the Ministry of Finance tried to get additional resources on the domestic market through the placement of bonds but managed to attract just $12 million, according to Andrei Chebotarev from Finance.kz Telegram channel. As Chebotarev wrote, the demand for five-year bonds with a yield of 13.85% per annum was just about 0.5% ($409,900). The two-year bonds with a yield of 14.1% were slightly more popular (8.4%) – the ministry has managed to attract $11.6 million. «When we increase the base rate, we push ourselves into debts. With no lowering of credit ratings and no sanctions – rates for our public debt have risen by 4-5 p.p. And even with these high rates, I can’t see big lines of people willing to buy this public debt,» he wrote.