Kazakhstan Holds Rates After Inflation Surges to 6-Year Highby
Base rate remains at 17%, as predicted by 3 analysts in survey
Inflation surging after tenge lost 50% against dollar in 2015
Kazakhstan’s central bank left its key interest rate unchanged as it looks to keep inflation in check after the tenge stabilized.
The base rate, set as the new benchmark after the central bank abandoned its currency peg in August, will remain at 17 percent, policy makers said in a website statement on Monday. Three of six economists surveyed by Bloomberg forecast the move, with the rest predicting cuts to 15 percent and 16 percent.
The decision “was made taking into account risks for price stability, financial stability and the economic-growth outlook,” the central bank said in the statement. “Keeping the base rate at the same level in the conditions of an economic slowdown reflects the necessity of ensuring demand for tenge assets.”
Oil’s worst downturn in a generation has taken a toll on Kazakhstan, which holds parliamentary elections this week, bringing the economy to a near standstill and sending its currency to the world’s second-worst performance last year with a 50 percent loss against the dollar. Inflation in February surged to 15.2 percent from a year earlier, the fastest since 2008.
The central bank also said it kept its rate corridor at plus or minus 2 percentage points. The overnight deposit and lending standing facility rates form a corridor around the new benchmark.
Governor Daniyar Akishev resumed operations with lenders last month after suspending them in November citing a need to deprive them of liquidity to speculate against the tenge. That’s helped bring money-market rates from a record 350 percent to an average of about 15 percent.
Among its post-Soviet peers, the tenge is the second-best performer against the dollar in the past month after the Russian ruble with a gain of 7.5 percent, according to data compiled by Bloomberg. The Kazakh currency, which closed trading before the rate announcement, gained 0.2 percent to 343.25 versus the dollar in Almaty, according to data on the Kazakhstan Stock Exchange’s website.
The Kazakh economy will expand 0.5 percent this year after a 1.2 percent gain in 2015, according to official forecasts. The central bank’s focus is on stabilizing prices because economic growth isn’t possible with fast inflation, Akishev said on March 4.
Inflation will slow in the second half and approach the 8 percent upper boundary of its target range by end-2016, the central bank said.
“The decision reflects continuing efforts to kick-start de-dollarization in the banking sector and limit internal FX demand, which would only be possible under a positive real interest rate in the economy when the tenge remains mostly in a free-float,” said Dmitry Polevoy, chief economist for Russia and the Commonwealth of Independent States at ING Groep NV in Moscow.