Kazakhstan: NBK pauses monetary policy easing cycle in August
At its meeting on 29 August, the National Bank of Kazakhstan (NBK) decided to maintain the base rate at 14.25% and keep the interest-rate corridor at plus or minus 1.0 percentage point. The hold had largely been priced in by markets and came on the heels of two consecutive 25 basis point cuts; the NBK has lowered rates by a cumulative 2.5 percentage points since August 2023.
The hold was motivated by rising inflation in July; though in line with the Bank’s forecasts, the NBK noted that price pressures accelerated due to the Tariff in Exchange for Investment program driving up the cost of services, rising production prices, a weaker tenge and a slower decline in agricultural prices. Moreover, the NBK stated that risks to the inflationary outlook are now tilted to the upside due to past fiscal stimulus measures and tariffs due to the reform of regulated prices, paired with robust domestic demand and unanchored inflation expectations.
Regarding activity, the Bank upgraded its 2025 GDP forecast to 5.1–6.1%, expecting previous fiscal stimulus to boost domestic demand. Meanwhile, it kept its projections for 2024 and 2026 unchanged at 3.5–4.5% and 4.9–5.9%, respectively.
In its communiqué, the Central Bank was more hawkish than in its prior meeting, indicating a “high probability of maintaining the base rate at the current level until the end of 2024”. The NBK determined that, given rising upside risks to inflation, a tight monetary policy stance is needed in order to drive inflation toward the 5.00% inflation target in the medium term. That said, our panelists expect the monetary policy loosening cycle to resume in Q4. Our Consensus is for 100 basis points of further cuts by the end of the year, though the spread remains large at 25–225 basis points.
The Bank will announce its next monetary policy decision on 11 October.
Analysts at Goldman Sachs commented:
“We think the uncertainty around fiscal policy has increased recently with more than 80% of the planned transfers from the National Fund to the Budget for 2024 having already been completed. […] Given looser fiscal policy and the sharp Tenge depreciation in recent months, we now forecast inflation to increase slightly in August, significantly raising the upside risks to our expectation of continued monetary easing by the NBK for the rest of the year.”