Kazakhstan's central bank left is base rate steady at 12.0 percent, saying it considers a significant deterioration in the prospects for the global economy, lower demand and increased volatility in commodity markets "a new economic reality," and global growth in 2020 may be the worst since 2008.
The National Bank of Kazakhstan (NBK) said its unscheduled 200 basis point rate hike on March 10 helped lower the spread of panic in financial markets and limit the emerging risks to inflation and protect the value of assets in the tenge currency.
At the same time, its decision to widen the interest rate corridor to 1.5 percentage points on either side of the rate had eased speculative pressure on the exchange rate and raised the cost of tenge borrowing by banks to 13.5 percent.
On top of the outbreak of the coronavirus, oil prices plunged on March 9 following the failure of OPEC-plus, which includes the non-OPEC nations of Russia, Kazakhstan and Mexico, to reach an agreement, hitting Kazakhstan's tenge hard.
Oil accounts for some 75 percent of Kazakhstan's exports and around one-third of its gross domestic product.
Last week's unscheduled rate hike was aimed at maintaining price stability, and NBK said it remains committed to a floating exchange rate regime as part of its inflation targeting policy framework.
This policy is also aimed at reducing the impact of external shocks on the country's economy, ensure macroeconomic stability and protect tenge assets.
However, if necessary the central bank said it will also carry out interventions to stabilize the financial system and between March 10 and March 13 NBK intervened to absorb some of the negative impact on the exchange rate from the change in external conditions.
From March 6 to March 13 the value of the tenge fell 6.1 percent to 405.62 tenge per dollar, NBK said.
Today the tenge was stable around 406.5 to the dollar, down 7.5 percent since a 2020 high on Feb. 24 and down 6.3 percent since the start of this year.
The unfolding price war between Russia and Saudi Arabia has led to a 50 percent collapse in crude oil prices since the start of this year, hitting the currencies of oil-exporting nations.
NBK has revised its forecast for Brent crude to $35 per barrel from $60 and based on the new realities of the global economy there is an increased risk that inflation may exceed its upper limit of its target corridor in 2020.
NBK targets inflation of 4-6 percent and in February inflation rose to 6.0 percent from 5.6 percent.
The central bank said it reserved the right to continue to smooth out fluctuations in financial markets, including the foreign exchange markets, that threaten price and financial stability and was ready to adopt additional measures if the global economy worsens.
www.CentralBankNews.info
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