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National Bank of Kazakhstan discloses base rate

Finance Materials 25 January 2021 21:12
National Bank of Kazakhstan discloses base rate

BAKU, Azerbaijan, Jan. 25

Trend:

The Monetary Policy Committee of the National Bank of the Republic of Kazakhstan decided to keep the base rate at 9.00 percent per annum with an interest rate corridor of +/- 1.0 percentage points, Trend reports with reference to the National Bank of Kazakhstan.

Accordingly, the rate on constant access operations to provide liquidity will reach 10 percent and on constant access operations to withdraw liquidity - 8 percent.

The decision was made to return inflation rate to the target band of 4-6 percent in the medium term and was stipulated to the shift in the balance of risks towards pro-inflationary factors.

The external and internal inflationary pressure has increased, the risks of further rise in food prices have increased and inflationary expectations are growing. The uncertainty associated with coronavirus infection in the country and the world also remains.

In accordance with the National Bank's forecasts, annual inflation as of 2020 reached 7.5 percent.

Food inflation accelerated to 11.3 percent (year on year) as a result of a big rise in prices for butter, eggs, sugar and vegetables, stipulated by the dynamics of the world prices and prices of domestic producers.

Non-food inflation amounted to 5.5 percent (year on year). An increase in prices for clothing, footwear, fuels and lubricants slowed down while prices for medicines, household items and household appliances increased, which was stipulated by the epidemiological situation, as well as the persistence of demand in terms of remote work and study.

The acceleration of service inflation up to 4.2 percent year on year is connected with the rise in the cost of unregulated paid services. The main contribution was ensured by the annual growth in the cost of catering services, hotel services, certain types of personal services and personal care services amid a gradual recovery in demand.

Core inflation indicators testify to the acceleration of inflationary processes. Thus, the annualized seasonally adjusted core inflation excluding fruits and vegetables, regulated utilities, rail transport, communications, gasoline, diesel fuel and coal, accelerated in December 2020 up to 7.9 percent (from September through October - 5-6 percent).

Inflation expectations remain elevated with a slight decrease in the quantitative estimate of expected inflation for the year ahead up to 7.6 percent in December 2020. The share of respondents expecting the continuation of the current or faster growth in prices amounted to 50 percent (in November 2020 – 52 percent).

The economy of Kazakhstan in 2020 decreased by 2.6 percent, which is in line with the forecasts of the National Bank. The main negative contribution to the decline in GDP was made by the decline in the mining industry, trade and transport. The downturn in the mining industry was stipulated by a decrease in oil and gas condensate production volumes.

The reduction in transport was facilitated by a decrease in the volume of cargo and passenger transportation. The negative dynamics of trade is associated with the persistence of quarantine restrictions and suppressed demand. Meanwhile, the manufacturing industry, agriculture, construction, information and communications, as well as the public sector made a positive contribution to the GDP dynamics.

The results of a survey of enterprises by the National Bank point to an improvement in sentiment in the real sector. Since July 2020, the Purchasing Managers' Index (PMI) continues to rise to the 50-point mark, reaching 49.0 points in December. The enterprises stress an improvement in the business environment. The business climate index for the economy of Kazakhstan in December 2020 amounted to 4.2 (in November - 1.3).

The deterioration of the situation in the global economy amid the pandemic affected the gradual slowdown in the growth of nominal cash income of the population of Kazakhstan - from 13.8 percent in March to 2.1 percent in November 2020 (year on year).

Moreover, the acceleration of inflationary processes led to a decrease in the real money income of the population (a decrease by 4.8 percent in November 2020). There is also a slight recovery in consumer demand of households, associated mainly with food consumption and a weak recovery in the consumption of non-food products in the second half of the year.

Taking into account the vaccination against COVID-19 launched in big countries, the situation in the global economy remains slightly positive, due to the strengthening of quarantine restrictions in a number of countries and the emergence of new strains of the virus. The industrial sector of developed countries and the further growth of foreign trade indicators in China continue to render big support to the world economy.

The dynamics of annual inflation in trading partner countries continues to evolve in different directions. The annual inflation rate in the EU reached 0.2 percent in December 2020. Inflation rate rose to 0.2 percent in China after deflation in November 2020. In turn, there is an acceleration of inflation to 4.9 percent in Russia, which together with an increase in the world food prices, testify to an increased external inflationary background. Monetary conditions of the trading partner countries remain soft.

The situation on the global oil market has slightly improved, which is explained by the new OPEC + agreement, the expectation for mass vaccination and the further recovery of the world economy. Through the support of these factors, the price of Brent crude oil has risen above $55 per barrel since early January 2021.

Despite the uncertainty about the prospects for the development of the oil market, the latest forecasts of international organizations slightly increased the estimate of the expected oil consumption.

Moreover, the supply of oil is expected to increase due to the current recovery in oil prices. In accordance with the EIA forecasts, the price of Brent crude oil will average $52.8 and $53.4 per barrel in 2021 and 2022, respectively.

Further decisions on the base rate will be made depending on the actual dynamics of inflation and its compliance with forecasts, the rate of decline and stabilization of inflation expectations, as well as the balance of risks.

The next planned decision of the Monetary Policy Committee of the National Bank of the Republic of Kazakhstan at the base rate will be announced on March 9, 2021.

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