National Bank of Kazakhstan lowers base rate 25 bps to 16.5%

ASTANA. Aug 25 (Interfax) - The National Bank of Kazakhstan's Monetary Policy Committee has cut the base rate 25 basis points to 16.5% per annum with an interest rate band of ±1 pp, the regulator said on Friday.

"The decision was based on updated forecasts from the National Bank, data analysis, and an assessment of inflation risks. While there is still some pro-inflationary pressure from the external environment, it is gradually weakening. Inflation is slowing down in most countries due to the central banks' policy to maintain stable prices. Still, it remains stable, causing a delay in interest rate cuts in developed nations," according to the press service.

The National Bank has observed that prices on global food markets and logistics costs are declining. However, there is still inflationary pressure due to the expansion of fiscal stimulus, strong domestic demand, high and unstable inflationary expectations, and rising production costs. A moderate increase in fuel and lubricant costs will have an indirect effect, which will be partly offset by changes in the tenge exchange rate.

"As inflation slow, we will continue a smooth and cautious reduction in the base rate. However, the potential for an increase in fiscal stimulus during the second half of the year limits our ability to lower rates further," the regulator says.

The National Bank notes that inflation continues to slow. As of July 2023, the annual inflation rate reached 14%.

In July 2023, there was a slight acceleration in monthly inflation to 0.6%, which exceeded the historical average.

Although there has been a slight decline, inflation expectations are still high and can be easily influenced by changes in certain commodity markets.

"The oil market will be held back by the Chinese economy's slowdown and the restrictive policies of central banks. As a result, the projected baseline scenario for 2023-2024 remains at $80 per barrel," the press release says.

The projected growth of Kazakhstan's economy in the medium term has been revised upwards. The GDP growth for this year is expected at the level of 4.2%-5.2%, while in 2024-2025, the forecast for Kazakhstan's GDP growth has been raised to 4%-5%.

"The risks of the GDP forecast are related to possible problems of Kazakhstan's export access to international markets, as well as a high probability of not meeting the oil production targets," the National Bank says.

The next decision on the base rate is due on October 6, 2023.