The base rate will remain at 14% - The National Bank of the Republic of Kazakhstan

The Monetary Policy Committee of the National Bank of the Republic of Kazakhstan decided to set the base rate at 14.00% per annum with an interest rate range of +/– 1.00 p.p. This is reported by MIA "Kazinform" with reference to the press service of the National Bank of the Republic of Kazakhstan. Accordingly, the rate for permanent access operations to provide liquidity will be 15.00%, and for permanent access operations to withdraw liquidity – 13.00%. "The decision was made taking into account the current balance of inflation risks in the short and medium term, as well as updated forecasts of the National Bank. This level of the base rate, in the absence of new shocks, will ensure a smooth decline in inflation by 2024. The normalization of monetary conditions will occur as inflation processes slow down in 2023," the Monetary Policy Committee explained. In May 2022, annual inflation continued to accelerate, amounting to 14%. At the same time, the National Bank notes the acceleration of all components of the consumer price index. "The biggest contribution to annual inflation continues to be made by the increase in food prices. Against the background of disruptions in logistics supply chains and steady demand, the trend of rising prices for goods with a high import component continued. The moratorium on price increases for regulated utilities and fuel restrains inflation," the National Bank of the Republic of Kazakhstan reported. Although monthly inflation continued to slow down in May to 1.4% (in April – 2%), but, as noted in the National Bank of the Republic of Kazakhstan, it still remains high and exceeds the historical average. The low rate of monthly inflation slowdown is associated with both stable domestic demand with a positive fiscal impulse and increased inflation expectations, the Financial Institute explained. According to the National Bank, quantified inflation expectations for the year ahead in May 2022 amounted to 11.7%. In April-May of this year, after a sharp increase in March of this year, inflation expectations for the year ahead decreased slightly. Respondents expecting a rise in prices on the horizon of one year, attributed this to the rise in price of food. The perception of inflation also remains at a high level, experts say. "The economy is growing faster than expected. According to the results of January-April 2022, GDP growth was 4.4%. Despite the geopolitical situation in the world and the accident at the CPC oil pipeline, economic growth continued. Against the background of rising world prices for raw materials and the lifting of quarantine restrictions, all major sectors of the economy demonstrate high growth rates. Consumer demand indicators reflect positive dynamics. According to the National Bank of the Republic of Kazakhstan, in April this year, the growth of retail trade turnover recovered after a significant decline due to the January events in the country. In particular, the turnover of food products recovered, which was in a negative zone in the first quarter of this year. The continued growth of consumer lending led to a rapid recovery in the turnover of non-food products in February with a further acceleration in April this year. After a slight slowdown at the end of 2021, the growth of investment in housing construction accelerated in the first quarter of 2022, experts of the National Bank note, this is due to the high demand of the population against the background of an increase in the volume of early withdrawals of pension savings for the purpose of improving housing conditions. Against this background, prices in the real estate market continue to maintain an upward trend in annual terms. "Weaker global economic growth is expected than previously expected. In 2022-2023, the world economy will increase by 3.6% (the previous IMF forecast for 2022 is 4.4%, for 2023 – 3.8%). According to Consensus Ecs. forecasts, the economy is expected to shrink by 9% in Russia in 2022 and by 1.4% in 2023. The growth rate of China's economy will slow down, amounting to 4.7% in 2022 and 5.1% in 2023. In the EU, the economy is expected to grow at the level of 2.8% in 2022 and 2.3% in 2023," the National Bank of Kazakhstan reported. Inflation in the trading partner countries continues to accelerate. According to the National Bank of the Republic of Kazakhstan, inflation in the Eurozone accelerated in May 2022 to 8.1% amid rising energy prices, while inflation is expected to peak in the second quarter of 2022. Inflation in Russia in April this year amounted to 17.8% against the background of rising prices of food and non-food products. In China, inflation is also projected to accelerate further from the current level of 2.1% in April 2022, but at a more moderate pace due to weak growth in consumer activity. The FAO food price index, despite a slight decline for the second month in a row, remains at levels close to records, amounting to 157.4 points in May this year. In May, there was a decrease in prices for vegetable oils, dairy products and sugar. At the same time, the sub-indices of grain and meat prices have increased. On the world market, high oil prices are supported by a partial EU embargo on oil from Russia, and at the same time are restrained by fears of re-quarantine in China due to the spread of coronavirus. "In the future, under the pressure of high energy prices and the curtailment of stimulus programs by central banks of leading economies, it is expected that demand will weaken somewhat. By the end of 2022, due to the expected increase in oil production in the United States and OPEC+ countries (due to the termination of the agreement by the end of 2022), prices are likely to decline slightly, the National Bank of Kazakhstan notes. - Thus, in 2022 it is assumed that the average oil price will be about $ 100 per barrel, and in 2023 – near $ 90. Taking into account the forecasts of international organizations and factors affecting the further trajectory of oil quotes, the price of Brent crude oil under the baseline scenario is set at $90 per barrel until the end of the forecast horizon." According to the updated forecasts of the National Bank, economic growth in Kazakhstan in 2022 will be at the level of 2.8-3.8%. Dynamic GDP growth rates will be associated with the already established high fact for January-April 2022, as well as the expected positive dynamics in all major sectors of the economy by the end of the year. However, the geopolitical crisis, weakening external demand and restructuring of supply chains will restrain the acceleration of economic growth. The risk of the GDP forecast is possible problems of access to international export markets of Kazakhstan against the background of geopolitical uncertainty, which, when implemented, may negatively affect the revision of the GDP growth forecast towards a lower pace, according to the National Bank of the Republic of Kazakhstan. According to the Financial Institute, in 2023, GDP growth is projected to accelerate to 3.5%-4.5%. Economic growth will be facilitated by the expected normalization of export and import supply chains, coupled with a reduction in economic uncertainty, a significant increase in energy production compared to 2022 due to the easing of restrictions within OPEC+ and the expected end of the deal of oil-producing countries. The preservation of positive dynamics of domestic demand will also provide support. In 2024, economic growth is projected to continue against the background of exhaustion of the negative impact of shocks and a significant increase in oil production, taking into account the implementation of large oil and gas projects. "Taking into account the current decision on the base rate, inflation is projected at 13-15% by the end of 2022," the National Bank said. - The largest increase in prices is expected for food products, taking into account the dynamics of prices on foreign and domestic food markets. There are significant risks of a sharp rise in prices for regulated utilities in the second half of 2022 due to the end of the moratorium on their increase, as well as an increase in prices for market services in conditions of high inflation expectations. This forecast is formed taking into account a set of Government measures to control and reduce the level of inflation, the successful implementation of which will allow inflation to fall to the lower limit of the forecast." In 2023, inflation will gradually slow down to 7.5-9.5%, as explained in the National Bank, against the background of the withdrawal from the calculations of the high base of 2022, the decision on the base rate, the gradual reduction of external inflationary pressure and the planned countercyclical budget rule. In the absence of both external and internal new shocks in 2024, inflation will still be outside the targeted corridor, while it is predicted to slow down to its upper limit. The National Bank explained that the main risks of accelerating inflation are associated with uncertainty against the background of the geopolitical situation in the world, the likelihood of capital outflow from emerging markets in favor of developed ones, import of external inflation, in particular from Russia, as well as risks from supply factors and non-anchoring of inflation expectations. Also, one of the important risks of the forecast is a possible upward revision of budget expenditures in comparison with the parameters provided for by the Law on the Republican Budget for 2022-2024. "Further decisions on the base rate will be made depending on the compliance of the actual dynamics of inflation with the forecast trajectory and the emerging balance of risks in the external environment and in the domestic economy," the National Bank of Kazakhstan concluded. The next planned decision of the Monetary Policy Committee of the National Bank of the Republic of Kazakhstan on the base rate will be announced on July 25, 2022 at 15:00 Nur-Sultan time.