Kazakh National Bank talks reasons for recent base rate increase

Kazakhstan Materials 26 October 2021 12:15 (UTC +04:00)

BAKU, Azerbaijan, Oct. 26


The National Bank of Kazakhstan disclosed the reasons for its recent decision to increase the base rate by 0.25 percentage points - up to 9.75 percent, Trend reports.

"When making a decision on the base rate, we analyze the effect of many factors both in the external sector and in the domestic economy," said Deputy Chairman of the National Bank Akylzhan Baimagambetov.

Within the bank’s decision to increase the rate, Baimagambetov mentioned the following internal factors as the most significant ones.

  • Inflation will exceed the 7.5-8.5 percent level of baseline scenario as of late 2021. This factor is the most important, and all the bank’s actions are aimed at bringing inflation into the target corridor of 4-6 percent by the end of 2022.
  • Expansion of demand for goods and services due to the active recovery of the Kazakh economy and the growth of consumer activity of the population. Nominal consumer spending of households increased in the second quarter to 19.5 percent, and in real terms - by 8.1 percent. This growth in consumption is explained by a double-digit growth rate of household income by 12.9 percent in the first eight months of 2021 from the beginning of the year, or by 4.9 percent in real terms. Rapidly growing demand exceeds the expansion of supply and affects the acceleration of inflationary processes. Kazakhstan is no exception here, similar trends are observed all over the world.
  • The ongoing increase in inflationary expectations of the population. The quantitative estimate of inflation expected in a year has increased and amounted to 9 percent in September. This is partly due to the perception of the current price increases, which are now at elevated levels. According to the survey results, 71 percent of respondents continue to note a strong increase in prices over the past year, which is one of the highest rates in the entire history of the survey.

"We'll continue to monitor and analyze the effect of the main factors of inflation, and all our actions will be aimed at entering the target corridor of 4-6 percent by the end of 2022," the deputy chairman said.

"The National Bank reacts to these objective factors by raising the base rate to continue stimulating economic agents to save behavior. This decision will also help prevent the emergence of undesirable balances in the money and foreign exchange markets," he concluded.