- Benchmark’s decrease to 13% surprised all economists in survey
- Inflation at fastest since 2008 as economy set for contraction
Kazakhstan’s central bank unexpectedly cut its key interest rate for the second time since introducing it last year, saying the risks of inflation accelerating further are “minimal” after it soared for 10 months to the fastest since 2008.
The base rate, set as the new benchmark after the central bank abandoned its currency peg in August, was decreased to 13 percent from 15 percent, policy makers in Almaty said in a statement on Monday. Four of five economists surveyed by Bloomberg forecast no change, with one seeing a decrease to 14 percent.
While inflation remains at more than double this year’s target, the improving outlook for prices means the central bank can shift its focus to the economy, which is at risk of its first contraction since 1998. Even as annual price growth in June jumped to 17.3 percent, Deputy Governor Oleg Smolyakov said last month that policy makers saw “more and more” factors in favor of deeper easing after an unexpected two percentage-point decrease in May.
“There’s a high probability that inflation can be expected to reach the upper bound of the 6 percent-8 percent target corridor by end-2016,” the central bank said. “A possible reduction of the base rate will be determined by the presence of a sustained signal indicating that inflation is converging with the target range.”
The gross domestic product of Central Asia’s biggest energy producer was poised to stabilize in June after shrinking 0.2 percent in the first five months of the year, National Economy Minister Kuandyk Bishimbayev said last month.
After abandoning its currency peg and adopting a free-floating exchange in August, the central bank lifted its new benchmark interest rate as high as 17 percent this year to halt outflows.
While the tenge has recouped some of last year’s losses as oil prices rebounded, the appreciation has done little to curtail inflation. The world’s second-worst performer in 2015 with a loss of about 50 percent against the dollar, the Kazakh currency has appreciated almost 14 percent since late January, better than all but one of its ex-Soviet peers.
The central bank is set to “pursue gradual monetary policy easing,” Oleg Kouzmin, economist for Russia and the Commonwealth of Independent States at Renaissance Capital in Moscow, said before the decision. Its rate cut timing is “appropriate” because “the last time it took a pause but pointed out that future policy easing could be possible if a number of positive developments in the Kazakh economy persist.”
The central bank also said it maintained its rate corridor at plus or minus one percentage point. The overnight deposit and lending standing facility rates form a corridor around the new benchmark.
“The National Bank’s task is to ensure that inflation falls into a corridor of 6 percent to 8 percent in 2016,” central bank Governor Daniyar Akishev said in an interview on Friday. “For us it’s a key question, which will also help increase trust in our policy.”