National Bank Explains Base Rate Decision
Photo: Elements.envato.com, ill. purposes
On March 7, the National Bank of the Republic of Kazakhstan decided to raise the key rate to 16.5% per annum with an interest rate corridor of +/- 1%, Orda.kz reports.
According to the National Bank, the increase in the rate is related to the assessment of inflation risks.
The noticeably softened monetary conditions, with current rates of price growth reaching high levels, required active and effective measures to reduce the risks of an inflationary spiral,The National Bank says.
The regulator notes that inflation in Kazakhstan is growing in all parameters, accelerating to 9.4% in annual terms.
Paid services are demonstrating the highest increase.
Domestic demand is fueling inflation against fiscal stimulus and an overheated consumer lending market. Inflation expectations of the population have also grown (to 13.7% in February).
Inflationary and geopolitical risks remain, which determine a tighter monetary policy and rhetoric of central banks, the National Bank concluded.
The inflation forecast was raised to 10-12% in 2025 and 9-11% in 2026. The National Bank expects higher fuel prices, higher VAT, and further increases in utility tariffs to drive the rise in prices.
At the same time, the regulator lowered its forecast for the growth of Kazakhstan's economy to 4.2-5.2% in 2025-2026.
The National Bank considered it necessary to raise the base rate to prevent further acceleration of price growth and prevent the "unwinding of the inflationary spiral."
Today's decision is intended to preserve the purchasing power of income and safegaurd the savings of the population, as well as support the confidence of market participants in tenge assets. The current decision on the base rate was made to avoid the need for a higher rate increase in the future. The decision will contribute to the return of inflation to a trajectory of sustainable decline to the target in the medium term, the National Bank said.
The next decision on the base rate will be made on April 11.
Original Author: Nikita Drobny
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