National Bank of Kazakhstan doesn’t rule out decreasing base rate in 2023

The National Bank of Kazakhstan may start gradually decreasing the base rate in the second half of 2023, according to Galymzhan Pirmatov, head of the agency, who spoke in the Senate, the upper house of the country’s parliament.

«In the second half of this year, the National Bank is going to consider the practicability of a smooth and prudent reduction of the base rate. Whether we’ll do this or not will depend on the correlation between real price surge and forecasted figures, the tempo of base inflation cooling (while fuel and utility prices grow), the dynamics of inflationary expectations and compliance with the fiscal rule when forming the state budget for 2024-2025,» Pirmatov said.

He recalled that in May, the National Bank was forced to worsen its annual inflation forecast for 2023 to 11% to 14% due to an increase in tariffs for regulated services, as well as due to the direct and indirect impact of higher fuel prices on the general price level.

The updated forecast of the regulator suggests that annual inflation will be at 11% to 14% in 2023, 9% to 11% in 2024 and 5.5% to 7.5% in 2025. The regulator’s target is 4% to 5%. The National Bank estimates that the indirect contribution of fuel and utility prices increases the inflation in 2023–2024 by 1 to 2.5 percentage points.

In March 2023, Pirmatov reported to the country’s cabinet that the inflation forecast for the current year would be at 9% to 12% in 2023, 6% to 8% in 2024 and 4% to 6% in 2025.

The National Bank has been strengthening its monetary politics since July 2021 when the base rate was increased from 9% to 9.25%. In May 2023, the regulator decided to keep the base rate the same for the fourth time in a row at 16.75% with the percentage corridor +/-1 p.p. The National Bank is expected to revise the current base rate again on July 5.