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Central Bank Governor does not rule out the key rate may be further slashed in May

28 april 2012, 12:15
0
Gregory Marchenko. Photo by Vladimir Dmitriyev©
Gregory Marchenko. Photo by Vladimir Dmitriyev©
Central Bank Governor Gregory Marchenko does not rule out a possibility of the key rate being further slashed in May or June. Newskaz.ru reports, citing National Bank Governor Gregory Marchenko as saying in his recent interview for the Prime News Agency.

Kazakhstan’s National Bank slashed its key rate from 7% to 6.5% late March. “Given the current trends at the financial market and slowing annual inflation, the Bank decided to set the key rate at 6.5% starting from April 1, which is the lowest rate ever”, the release read. Previously the key rate had been slashed February 14, 2012 from 7.5% to 7%.

Annual inflation as of April 1, 2012 stood at 4.6%, the lowest in the last 13 years.

“Kazakhstan has seen hikes of prices for fuel. The prices are still lower than those in other member states of the Customs Union [that is Russia and Belarus], so they are set to further grow. The inflation has been slowing down, enabling the National Bank to slash the key rate to 6.5%, which is the lowest point in history of the independent Kazakhstan”, Central Bank Governor elaborated.

“Should we see the inflation rate remains below 6% after tariffs for utilities have been raised, we may consider slashing the key rate to 6% … this may happen late May or June. We shouldn’t hasten … a signal that the cost of borrowed capital is decreasing has already been given”, he believes.

The key rate is the interest rate at which an eligible financial institution may borrow funds directly from the National (Central Bank). The National Bank uses the key rate to control the supply of available funds, which in turn influences inflation and overall interest rates. The more money available, the more likely inflation will occur. Raising the rate makes it more expensive to borrow from the National Bank. That lowers the supply of available money, which increases the short-term interest rates. Lowering the rate has the opposite effect, bringing short-term interest rates down.

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