Monday, July 9, 2018

Kazakhstan maintains rate, limited potential for easing

      Kazakhstan's central bank left its base rate at 9.0 percent, as it signaled last month, and said the risks to inflation in the short and medium term, especially from the external sector and fiscal policy, would limit the potential for further monetary easing this year.
      The National Bank of Kazakhstan (NBK), which has cut its rate by 125 basis points this year, added inflation was forecast to remain within the bank's target corridor this year and 2019.
      In June the NBK said monetary conditions had reached a neutral level, signaling it was ready to shift into a neutral policy stance after cutting the rate by a total of 800 basis points since May 2016.
      While the NBK in June also noted the reduced potential for further rate cuts due to a slowdown in the downward trend in inflation and higher inflationary risks, it added that monetary conditions might be tightened to reduce inflationary expectations.
      Today the NBK said monetary conditions continue to be maintained at a neutral level but the operational benchmark of monetary policy - the tenge overnight index average known as TONIA - was closer to the lower boundary of the rate corridor.
       The central bank would therefore consider narrowing the corridor in the second half of the year to increase the operational efficiency of regulating monetary and credit conditions.
      Last month the International Monetary Fund (IMF) noted Kazakhstan's economy was continuing to recover from the shock of lower oil prices and slower economic growth in its main trading partners and strong exports of oil and metals was now boosting activity, helping narrow the current account deficit while inflation has remained within the central bank's target range.
       The IMF also said the central bank's rate cuts had been appropriate and consistent with keeping real interest rates close to neutral level and going forward the NBK should resist calls for accommodation and the balance of risks warrant a "cautious approach to further easing."
      Kazakhstan's inflation rate eased to 5.9 percent in June from 6.2 percent in May, mainly due to seasonal trends in agricultural food markets and continued slowdown in domestic prices.
      The NBK targets inflation of 5 -7 percent and based on a comparison with the third quarter of last year the central bank expects a noticeable slowdown in inflation by the end of this year.
      Inflationary expectations for the year ahead in June was steady at 6 percent, the same as in May and February while changes in March and April reflected market conditions, NBK said.
      Economic activity remains positive, with all major industries contributing to growth in excess of the country's potential in the first five months, supported by higher domestic demand and investment and external demand, which introduces inflationary pressures.
      While oil prices are continuing to have a positive impact on economic activity, NBK said international food prices dropped in June for the first time this year due to increased trade tension between countries.
      Although cereals prices fell, the central bank said production prospects had deteriorate, strengthening the inflationary background and further inflationary pressures are possible due to higher inflation in its main trading partners.
       During June the tenge continued to depreciate against a firmer U.S. dollar, with the volume of short-term notes from the central bank from non-residents easing to 241 billion tenge from 454 billion in March, a further factor in weakening the exchange rate, NBK said.
      Today the tenge was trading at 343.9 to the dollar,  down 3.2 percent this year.



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