The National Bank of Kazakhstan cuts the base rate by 50 bps

KAZAKHSTAN - In Brief 23 Feb 2024 by Evgeny Gavrilenkov

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The NBK cut the base rate to 14.75%, i.e., by 50 bps, quoting falling inflation expectations as a key factor that triggered this decision. The regulator also referred to falling global food prices. Note that in January, inflation fell to 9.5% y-o-y while m-o-m inflation remained elevated (0.8% m-o-m). By year-end the NBK expects inflation to stay within the range from 7.5% to 9.5% amid 3.5%-4.5% GDP growth - assuming $80/bbl average annual oil price this year. Even though in the past 30 days the tenge moved from about USD/KZT 444 to USD/KZT 453 (albeit it was not an even move), it still remains excessively strong and keeps inflation at bay, albeit at a relatively high level. The rate cut looked relatively cautious as in its statements the NBK referred to some uncertainty associated with the budgetary policy. In our notes we repeatedly mentioned that in order to collect enough taxes from exporters, the KZT needs to be weaker. If the tenge's weakening continues it may prevent inflation from falling. Therefore, the NBK has a reasonable inflation forecast range for this year. The NBK's medium-term target is 5% and it will take time, as well as some change in budgetary policy, to achieve it.