24 Nov 2023 09:59

Kazakhstan's central bank lowers base rate to 15.75% as expected

ASTANA. Nov 24 (Interfax) - The monetary policy committee of the National Bank of Kazakhstan (NBK) has decided to lower the base rate to 15.75% with a plus/minus corridor of 1 percentage point, the NBK's press service reported.

Most analysts polled by Interfax expected a rate cut of 25 to 100 basis points. The most accurate were forecasts by Tickmill brokerage group expert Arman Beisembayev, who forecasted the rate would be reduced 25 to 50 basis points.

"Annual inflation continues to slow rapidly. The figure is expected to move into the single digits in the coming months. Monthly inflation in October slowed to average historical values. External inflationary pressure continues to ease amid the contractionary policy of central banks and the decrease in world food prices. There are certain factors and risks that require attention. In the domestic economy, pro-inflationary pressure remains from fiscal stimulus, stable domestic demand, and high and unstable inflation expectations," the National Bank said in a statement.

"The dynamic decline in annual inflation and its lower forecasts until the end of 2023 have created space for reducing the base rate. Further decisions on the base rate will depend on the compliance of the actual dynamics of inflation with its forecast trajectory," the regulator said.

The National Bank said that annual inflation continued to slow in October 2023, reaching 10.8%. Monthly inflation in October 2023 was 0.7%, falling to the level of its average historical values.

"The slowdown in price growth is due to the ongoing monetary policy, a decrease in global inflationary pressure and production costs, the gradual restoration of supply chains, government measures, as well as the influence of the high base effect of last year. Core and seasonally adjusted inflation indicators have stabilized, but continue to form above the target and reflect sustained price increases for a wide range of goods and services," the press release said.

According to the National Bank, public inflation expectations, despite the consistent slowdown in inflation, remain elevated and sensitive to changes in the situation on individual commodity markets. In October 2023, inflation expectations for the coming year increased. The main factors for increased expectations remain the rise in prices for fuel and lubricants and the dynamics of food prices.

"Global inflation continued to slow. In many countries, including most trading partner countries, there is a trend towards slowing inflation. At the same time, risks of increasing external inflationary pressure remain because of higher inflation in Russia compared to the previous forecast. In the medium term, pro-inflationary pressure "will weaken as inflation in trading partner countries approaches target values. The FAO food price index is declining due to falling prices for sugar, grains, vegetable oils and meat," the National Bank said.

Cereal prices are expected to decline as supply increases seasonally, but prices are expected to rise towards the end of 2023 and early 2024 because of lower grain supplies from Ukraine. From mid-2024, grain prices are expected to gradually decline due to increased supply and improved supply chains.

The National Bank notes that external monetary conditions remain challenging. Uncertainty about further inflationary dynamics is again shifting the start of the US Federal Reserve rate cut cycle to a later date. The European Central Bank intends to maintain a policy of high rates for a longer period. In some trading partner countries, monetary policy continues to tighten as inflation exceeds target values.

The National Bank of Kazakhstan will announce its next decision on the base rate on January 19, 2024.

The current rate reduction is the third this year. In August, it was lowered from 16.75% to 16.5%, and in October - to 16%. National Bank Chairman Timur Suleimenov said in November that the central bank intends to further reduce the rate, but will approach it with caution. At the same time, a sharp reduction in the rate in the current conditions would be unacceptable.