The NBK raised its base rate to 14.5 to follow the inflation

KAZAKHSTAN - In Brief 27 Jul 2022 by Alexander Kudrin

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On July 25, the National Bank of Kazakhstan raised its base rate by 50 bps to 14.5%, i.e., to y-o-y inflation reported in June. In May and June, the m-o-m inflation remained elevated (1.4% and 1.6%) and was higher than the m-o-m inflation in 2021 over the same months (0.7% and 1.1%). Hence inflation y-o-y kept rising. Even though there are signs that the m-o-m inflation may slow to single-digit levels in July and onwards, it will likely be single-digit. Therefore, inflation y-o-y will keep climbing in 2H22 as the m-o-m inflation in 2H21 remained in the mid-single digit area. In 2022, inflation m-o-m was higher than usual in February (3.7%) and March (2.0%) but since then moderated. As a result, due to February-March base effects, the annualized 6M moving average will most certainly fall sharply from 4Q22 (assuming no other shocks to the global or regional economy) amid rising y-o-y inflation. The NBK policy currently doesn’t look proactive and is seemingly tracking inflation rather than being aimed at influencing it. It looks backward-looking and cautious, which may be ok for the time being as uncertainty remains high worldwide. Whether the NBK will continue to follow the same policy path, i.e., keep increasing the policy rate gradually until the y-o-y inflation peaks, will most likely depend on the pace of the m-o-m disinflation. Alternatively, it can try to become more proactive and stop hiking the policy rate (and may even consider cutting it). While y-o-y inflation may continue gradually climbing to 15% further to 16% in 2Q22, in October, the annualized 6M moving average inflation rate is likely to fall below 13.5%, which may be a reasonable time to reconsider the ...