Kazakhstan: Central Bank unexpectedly cuts the base rate in April
At an emergency meeting on 3 April, the National Bank of Kazakhstan slashed the base rate to 9.50% from 12.00%, while also expanding the interest rate corridor to plus or minus 2.0 percentage points, from a previous interest rate corridor of plus or minus 1.5 percentage points. Previously, the Bank hiked the base rate in March in an unsuccessful attempt to prevent a sell-off of the tenge.
An expected fall in economic activity this year brought upon by the fallout of the Covid-19 pandemic and the crash in oil prices, prompted the Bank to cut the base rate. Inflation rose to 6.4% in March (February: 6.0%), exceeding the upper bound of the 4.0%–6.0% target corridor, amid a historic depreciation of the currency. However, the Bank favored supporting the economy in order to cushion the blow of the crisis, in a joint effort with the government to deliver stimulus through both monetary and fiscal channels.
Looking ahead, the Bank projects inflation to be in the range of 9.0%–11.0% this year before slowing in 2021. Meanwhile, despite the monetary and fiscal stimulus, economic activity is seen contracting provided current conditions persist. The Bank will continue to carry monetary policy in a flexible manner to ensure financial stability.
The next meeting is scheduled for 27 April.