- Central bank says ‘too early’ to see steady inflation decline
- ‘Volatile’ inflation expectations add to risks of price growth
Kazakhstan kept borrowing costs unchanged for the third time this year and indicated they are likely to stay there for the first half of 2023 as worries over inflation persist.
The National Bank held its key interest rate at 16.75% on Friday, leaving it within 25 basis points of the highest on record. The balance of factors indicates a need to keep the rate at this level in the first half to reduce inflation in the medium term, it said.
“Volatile inflation expectations indicate an increased pro-inflationary background in the country,” the bank said in a statement. “The risk of a possible acceleration of inflation as a result of rising prices for previously regulated goods and services remains and partially begins to be realized,” along with the impact of rising food prices due to crop losses from bad weather.
A “significant revision” of government budget spending and the temporary suspension of the budget rule also “creates uncertainty and shifts the balance of risks to the pro-inflationary side,” even as monthly price growth eased in March, according to the bank. “It is still too early to talk about a steady and stable trend of falling inflation.”
Kazakh President Kassym-Jomart Tokayev reappointed most of his government after parliamentary elections in March delivered a commanding majority for the ruling party that’s loyal to him. He’s pressing officials to cut inflation by half and accelerate economic growth to 4% this year.
Annual inflation eased to 18.1% last month after surging food prices helped push it to 21.3% in February, the fastest in more than a quarter century.
Kazakh Prime Minister Alikhan Smailov said April 4 that the government expects a continued slowdown in inflation. That’s even as central Asia’s largest energy producer prepares to hike gasoline and diesel prices by an average of about 15% next week, after they were frozen in the wake of deadly riots in January last year that were sparked by increased fuel costs.
Tokayev appealed to Russian President Vladimir Putin to send troops to put down the protests that he called an attempted coup. He has since moved to dismantle the legacy of his long-serving predecessor Nursultan Nazarbayev, including by revising the constitution to limit the presidency to a single seven-year term.
Kazakhstan’s central bank said Monday that it expects foreign currency sales from the national oil fund at $550 million to $650 million this month, down from $721 million in March. The bank plans to buy $200 million to $250 million for the unified pension fund in April compared with $232 million it bought in March.
Foreign currency sales by state-run companies and Kazakhstan’s oil fund rose to $974 million in March from $885 million in February, while the central bank avoided interventions in the foreign-exchange market. The tenge has strengthened by less than 1% against the dollar since the last rate decision in February.
The central bank said its rates corridor, formed from the overnight deposit and lending rates, was kept at plus or minus one percentage point around the benchmark. The next rate decision is scheduled for May 26.