Kazakhstan macro: inflation to remain elevated in 2023, leaving limited room for base rate cuts

KAZAKHSTAN - Report 13 Mar 2023 by Evgeny Gavrilenkov and Alexander Kudrin

Kazakhstan’s National Bank recently released its updated macroeconomic forecast and it expects the country’s economy can expand within the 3.5% to 4.5% range in 2023. The regulator expects the same rates for GDP growth in 2024 and 2025, quoting it as an equilibrium growth trajectory for Kazakhstan. These numbers do not unreasonable, although the NBK might be too optimistic in expecting inflation to decelerate close to 9% this year. It looks as though the median inflation forecast this year should be close to the upper boundary mentioned by the NBK (from 9% to 12%) or even above, as there are no signs yet that monthly inflation may see single digits soon.

The Kazakh economy is at a low level of monetization, and the velocity of money circulation is high, which is one of several inflationary factors. Lending to households soared last year, and the trend will likely continue in 2023 as interest rates on household credit are low in real terms. Hence, the economy remains overheated, and production and import constraints will keep inflation elevated (assuming other factors are equal)—at least for a while. Still, disinflation will occur going forward, although most likely, it will be gradual this year. If so, one should not expect a fast reaction from the NBK concerning a base rate cut.

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