NUR-SULTAN

Kazakhstan’s National Bank raised its key policy rate to 9.25 percent from 9 percent to curb rising inflation.

The bank had been holding the rate for six months since cutting it by 50 basis points in July 2020, as it monitored inflationary pressures.

The rate corridor was kept at plus or minus 1.0 percentage points, the central bank said. The rate on access operations to provide liquidity was set at 10.25 percent, and the rate on access operations to withdraw liquidity at 8.25 percent.

The central bank said that the decision was prompted by realised inflation risks from the supply side of the economy and sustained inflationary pressure in the demand side, as the rapid restoration of economic growth and the dynamics of consumer activity, combined with a significant fiscal stimulus, boosted price growth pressures.

“Weighted tightening of the monetary policy is caused by the need to forestall the risks of twisting an inflationary spiral and return inflation to the target band of 4-6 percent in 2022,” the bank said in a statement.

The central bank said that the effect on the recovery of business activity of the instability caused by the COVID-19 pandemic globally and, in particular, in Kazakhstan, was taken into account.

“The rise in the rate will maintain the attractiveness of tenge assets, which will increase the efficiency of pricing in the foreign exchange and money markets, in order to form expectations that exclude unwanted balances,” it said.

Consumer prices in Kazakhstan rose by 7.9 percent year-on-year in June after rising 7.2 percent in May. Monthly inflation in June was 1.1 percent, up from 0.7 percent in May.

Kazakhstan’s National Bank forecasts annual inflation in a range of 4-6 percent in 2021.

The economy is showing tentative signs of recovery. For the first half of 2021, real Gross Domestic Product (GDP) growth amounted to 2.2 percent in annual terms. The economy is recovering owing to the rising global commodity prices and easing quarantine restrictions. The manufacturing industry, trade, construction, information and communications, and agriculture showed stable growth in January-June 2021.

In April, Kazakhstan’s Economy Ministry revised the growth forecast up to 3.1 percent in 2021 from a previous projection of 2.8 percent, as first-quarter indicators showed improvement. The central bank expects economic growth to exceed government projections, forecasting expansion of 3.4 to 3.7 percent in 2021.

The Asian Development Bank (ADB) increased its economic growth forecast for Kazakhstan to 3.4 percent from 3.2 percent in 2021.

By comparison, the International Monetary Fund said in April that Kazakhstan’s GDP was forecast to grow 3.2 percent in 2021 and 4.0 percent in 2022. Annual inflation is projected at 6.4 percent this year and 5 percent in 2022.

The World Bank’s latest projections were also optimistic. It forecast that growth will rebound to within 3 to 4 percent growth in 2021 and 3.5 percent expansion in 2022, driven by the resumption of domestic activity, recovery in global demand for oil, continued fiscal support measures, and a successful national inoculation against the COVID-19 virus.