Visitors Now:
Total Visits:
Total Stories:
Profile image
By CentralBankNews.info (Reporter)
Contributor profile | More stories
Story Views

Now:
Last Hour:
Last 24 Hours:
Total:

Kazakhstan cuts rate 50 bps, cautious about further cuts

Monday, November 14, 2016 10:47
% of readers think this story is Fact. Add your two cents.

(Before It's News)

    Kazakhstan's central bank lowered its base rate by another 50 basis points to 12.0 percent and said further cuts to the base rate are possible but the risks to price stability and confidence in the tenge currency may increase as interest rates decline, restraining “further rapid cuts.”
   The National Bank of Kazakhstan has now cut its rate by a net 400 basis points this year and by 500 points since February this year when the rate was raised to 17.0 percent to curb accelerating inflation.
    But inflation has declined in the last two months and the central bank said today's rate cut reflects the expected decline in inflation, the continuing pace of de-dollarization of bank deposits and reduced inflation expectations by households.
    However, an increase in uncertainty in global financial markets may slow down the process of moving foreign currency deposits into the tenge and given the sensitivity of the economy to external shocks, further rate cuts require “a cautious approach,” the bank said.
    Should the country's economic situation improve and financial markets continue to be stable, further cuts to the base rate are possible, the central bank said, adding that the decision to cut rates further “will require a more cautious approach and a thorough rationale.”
    Kazakhstan's inflation rate dropped to a 2016-low of 11.5 percent in October from 16.6 percent in September and the central bank estimates that inflation next year will remain within its target range of 6-8 percent in the absence of negative shocks.
    The exchange rate of Kazakhstan's tenge, which fell sharply in August 2015 following the central bank's move to a floating exchange rate regime, has been relatively stable in recent months and there was almost no impact on the downward trend in devaluation expectations by financial markets in reaction to the results of the U.S. Presidential election, the bank said.
    Today the tenge was trading at 342.8 to the dollar,  down 0.7 percent since the start of the year.
    The central bank's move to a floating exchange rate regime last year came in response to capital outflows and the conversion of many tenge bank deposits to foreign currency. Oil accounts for about 60 percent of Kazakhstan's exports and over 10 percent of its Gross Domestic Product. 
    A poll last month showed that households' perceptions of inflation is continuing to improve and the number of people who assume the tenge will be stable or rise was continuing to increase.
    The central bank said the country's economy is continuing to recover – the economy was hard hit by the 2014 fall in oil prices, the economic crises in Russia and a slowdown in China – and the short-term indicator rose by an annual 2.3 percent in September, overcoming an accumulated decline.
    In its inflation report for the second quarter, the central bank forecast 0.3 percent economic growth this year based on oil prices of US$ 40 a barrel and 2.0 percent for 2017.

   
     The National Bank of Kazakhstan issued the following statement:
    
   
“The National Bank of Kazakhstan has decided to reduce the base rate to 12% with a corridor of +/- 1 percentage points. The decision reflects the downward trend of inflation in line with the forecast, continuing pace of de-dollarization of bank deposits, and reduced inflation expectations of households. Increased uncertainties in the global markets, which may be followed by the slowdown in the process of reallocation of foreign currency assets into the national currency, as well as the sensibility of the economy and the financial sector to external shocks, require a cautious approach to further reduction in the base rate. Should the economic situation is significantly improved and persistent signs of stabilization in the financial market are present, further cuts are possible.

The decision on the base rate was made with the account of the following factors.

For 10 months of 2016 inflation amounted to 6.2%, which corresponds to the historical trend. Possible deviations of the annual inflation from the target at the end of 2016 will be determined by the factors that are outside of the influence of the National Bank. At the same time, according to the estimates of the National Bank, the annual inflation will be sustainably within the target range of 6- 8% throughout the whole year of 2017 in the absence of negative shocks.

Inflation expectations of households show a moderate pattern. The recent poll showed that in October the share of respondents expecting the current growth rates of prices during the next 12 months has increased insignificantly. Hence, the households’ perception of inflation is improving, which contributes to the decrease in their pro-inflationary behavior.

Fluctuations in oil prices and in the exchange rates of a number of currencies of developed and developing countries, as well as a short-term market reaction to the election results in the United States, in fact had almost no effect on the downward trend of the devaluation expectations of market participants. The number of respondents, assuming stability or appreciation of tenge, continues to increase.

Deposit market indicators suggest resumption of de-dollarization and currency preferences of investors shifting toward tenge. The share of deposits denominated in foreign currency decreased from 58.3% in September to a level below 57% in October 2016, according to preliminary data.

The signs of economic recovery remain. In September 2016 the short-term economic indicator, which represents tendencies in the development of main sectors of economy, increased by 2.3% in annual terms overcoming accumulated fall during the previous months (during the 9 months of 2016 growth rate of the indicator accounted for 0%).

However, risks which may deteriorate economic conditions persist. Current situation in the world oil market shows that there is a considerable uncertainty about its future development. An expected by markets rise in the key interest rate of the Federal Reserve and the results of the US presidential elections increase the risk of changes in international capital flows and market quotations. Continued fiscal imbalances in Kazakhstan and in the countries – trade partners, as well as uncertainty about their prompt solution increase the likelihood of the pass-through of the resulting possible economic shocks on Kazakhstan.

The presence of these risks on the background of the declining annual inflation in 2017 restrains the further rapid cuts in the base rate. The risks for price stability and confidence in the tenge at lower levels of interest rates may increase, including the risks performing through the channels and variables that the National Bank is observing with a substantial lag and over which the National Bank has a limited control, especially at the short-term horizon. In such circumstances, the decision to further cut the base rate will require a more cautious approach and a thorough rationale.

The next decision on the base rate will be announced on January 9, 2017 at 17.00 Astana time.”

    www.CentralBankNews.info

Report abuse

Comments

Your Comments
Question   Razz  Sad   Evil  Exclaim  Smile  Redface  Biggrin  Surprised  Eek   Confused   Cool  LOL   Mad   Twisted  Rolleyes   Wink  Idea  Arrow  Neutral  Cry   Mr. Green

Top Stories
Recent Stories

Register

Newsletter

Email this story
Email this story

If you really want to ban this commenter, please write down the reason:

If you really want to disable all recommended stories, click on OK button. After that, you will be redirect to your options page.