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Inflation in Kazakhstan to ease back to target - Renaissance Capital

Finance Materials 2 February 2022 18:42 (UTC +04:00)
Inflation in Kazakhstan to ease back to target - Renaissance Capital

BAKU, Azerbaijan, February 2

By Nargiz Sadikhova - Trend:

Inflation in Kazakhstan to ease back to the 5 percent target and to open the door to monetary easing with the policy rate, Trend reports citing Russia’s Renaissance Capital investment bank.

The Bank said it anticipates additional fiscal expenditure of 0.5 - 1 percent of GDP in 2022 to be financed by market borrowings or the National (Oil) Fund.

“We do not think this will compromise fiscal sustainability given relatively low public debt (below 30 percent) and solid savings in the National Fund (30 percent of GDP; the second-largest in the region of international reserves covering 10 months of imports) – nor will affect on the sovereign credit rating, although it could delay the adoption of the full-fledged fiscal rule (previously targeted from 2023),” the Bank said.

In its words, more persistent inflation amid softer fiscal policy and continuing external cost pressure could force the National Bank of Kazakhstan (NBK) to keep local rates higher.

“We see room for one-or-two additional NBK rate hikes in 1H2022 with the policy rate at 10.5 percent by end-2022. In 2023, we expect the easing of inflation back to the 5 percent target to open the door to monetary easing with the policy rate at 9 percent and 8 percent by end of 2023 and 2024, respectively,” the Bank said.

The Bank noted that this set-up, amid the past month’s market indices weakness, could still provide a good entry point to the Kazakh equity market.

“For debt investors, local bonds (offering above 10 percent yields) could look the most appealing starting from 2Q2022 as soon as the rate-hiking cycle is over, while we maintain our Market-weight recommendation for Kazakh Eurobonds given solid credit quality and what we view as decent valuation,” the Bank said.

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