National Bank of Kazakhstan should keep base rate unchanged due to inflationary risks - dep governor

ASTANA. Feb 14 (Interfax) - Ongoing inflationary risks require that the National Bank of Kazakhstan keep the base rate at its current level, said Berik Sholpankulov, the bank's deputy governor.

Inflation continues to climb amid the reconfiguration of supply chains, high inflation expectations, fiscal support for the demand and increased lending, Sholpankulov said at a cabinet meeting on Tuesday.

"The ongoing risks demand that the base rate should be kept at current level," he said.

"The IMF cautions against an increase in budget spending, which may further push inflation up in the current environment," Sholpankulov said.

National Bank Governor Galymzhan Pirmatov said earlier that it would not be advisable to lower the rate as things stand. In the event of monetary easing, unjustifiably low yields for tenge assets in the money market compared to high inflation would cause a change in currency preferences, both among professional financial market participants and households, which in turn would trigger growth for devaluation expectations and a weaker tenge.

The National Bank of Kazakhstan decided on January 13 to hold its base rate at 16.75% per annum within an interest rate band of ±1 percentage point. "The dynamics of internal and external inflationary processes, as well as the economic growth path are evolving in accordance with the National Bank's forecast baseline scenario. Monthly inflation is gradually slowing down while at the same time it exceeds its average annual values," the regulator said at the time.

The balance of inflation risks remains tilted towards pro-inflationary risks, it said. "The negative impact of the restructuring of supply chains on the economy continues. Persistent risks require that the base rate be held at current values for an extended period of time," the regulator said.

The base rate has been 16.75% per annum since December 2022. Kazakhstan had 1.1% inflation for January and 20.7% annual inflation. Consumer prices rose 20.3% in 2022.

Sholpankulov also said on Tuesday that Kazakhstan's Business Activity Index went up by 1.5 points to 50.7 in January 2023, rising above 50 points for the first time in the past eight months.

"Business activity has recovered in the service and manufacturing sectors with the indices rising to 52.1 and 51.3, respectively" from 49.7 and 50.7 in December, he said.