BAKU, Azerbaijan, July 4. Monetary policy of Kazakhstan is characterized by rather strict regulation, Trend reports with reference to Russian Analytical Credit Rating Agency (ACRA).
ACRA assesses the monetary policy pursued in Kazakhstan as fairly tight based on the concept of a long-term nominal neutral rate. This concept implies that monetary policy, other things being equal, has a restraining effect on potential economic activity in the country.
"ACRA estimates the period from the end of 2019 through mid-2022, including the coronavirus COVID-19 pandemic year 2020, the economic recovery in 2021 and the growing uncertainty in 2022 due to the sanctions policy against Russia,” agency said.
The inflation target band used in estimating the neutral rate ranged from 4 to 6 percent during this period, with an average of 5 percent. The inflation target band did not change against the backdrop of shocks in the economy of an internal and external nature, which could not but affect the level of rigidity of monetary conditions," ACRA noted.
According to the agency, this trend has not weakened over a period of time, instead, the rigidity of monetary policy has only intensified this year.
According to ACRA, the level of rigidity increased from 2-3 percent, over the analyzed period, to a peak of 7.3 percent at the end of February 2022. There was some rebound after the peak, but generally, monetary policy remained tight over this period.
The estimated figure was 6-7 percent from April through May 2022, which exceeds the level of March 2020, when the country was quarantined due to the coronavirus COVID-19 pandemic. National Bank of Kazakhstan significantly increased the base rate amid a rush on the foreign exchange market under sharp drop in oil prices," the agency said.
ACRA also noted that the reasons for tight monetary conditions are both bursts of consumer inflation from 2020 through 2022 and a low inflation target band since 2019, also the risk of dollarization of the banking system, and devaluation expectations.
“The base rate did not fall below 9 percent during the COVID-19 pandemic and in a period of implementation of economic measures to counter inflation, probably for these reasons, while central banks of other countries in the world at that time mainly sought to provide loose monetary conditions,” ACRA said.