Thursday, May 5, 2016

Kazakhstan cuts rate 200 bps as tenge rebounds

    Kazakhstan's central bank cut its base rate by 200 basis points to 15.00 percent, saying the balance of risks between price stability and financial stability has improved since March, with inflationary expectations declining, confidence in the tenge currency improving and the cost of hedging currency risks falling.
    The National Bank of Kazakhstan had left its rate steady in March following rate hikes totaling 500 basis points - most recently in February - since introducing a new base rate in September 2015.
   In March the central bank said the exchange rate of the tenge had stabilized but it still needed to improve the attractiveness of holding tenge assets.
    In August last year the central bank floated the tenge as part of a shift to inflation targeting, resulting in an immediate drop in its value of around 25 percent to the U.S. dollar as the economy was hit by the global plunge in crude oil prices.
    The following month the central bank then launched a new base rate of 12.0 percent and raised the rate in the following months to stabilize the tenge and curb accelerating inflation.
    Kazakhstan's inflation rate rose to 16.3 percent in April - the highest rate since December 2008 - from 15.7 percent in March, but the central bank said the main reason was due to the transfer of a lower exchange rate to domestic prices in the period form October to December.
    This transfer effect on tradable prices is "almost depleted," the bank said, adding that monthly inflation in the last three months had been within the limits of the target corridor of 6 - 8 percent.
    In addition, a survey in April showed that inflation expectations had decreased with the percentage of people expecting higher price rises in the next 12 months falling to 40.5 percent from 61.6 percent in January.
    The central bank forecast inflation of 6 - 8 percent by the end of this year.
    The sale of foreign currency to citizens in February and March exceeded purchases for the first time in 10 years, the bank said, and deposits in the tenge currency had risen by 777.5 billion tenge, or 4.8 percent of total deposits, giving banks an opportunity to recapitalize.
    The tenge was trading at 326.1 to the U.S. dollar today, a jump of 20 percent since a low of 391 on Jan. 21 and an appreciation of 4.4 percent since the beginning of the year.


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