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Tengrinews.kz - The National Bank of Kazakhstan has decided to keep the base rate unchanged at 15.25% per annum, with a corridor of +/-1 percentage point, the regulator announced on Friday, January 17.
According to the statement, inflation in Kazakhstan rose to 8.6% in December, remaining within the forecast range of 8-9% for 2024.
"The main contributors to this trend are the high growth in service prices and the acceleration of non-food inflation observed since August. Inflation is rising amid the implementation of the 'Tariff for Investment' program and the weakening of the tenge. Additionally, the persistent increase in core inflation indicates demand-side pressure due to ongoing fiscal stimulus. Inflation expectations among the population rose again in December, showing high volatility," the central bank noted.
External inflationary pressure remains elevated due to high global food prices and accelerating inflation in Russia. In developed economies, inflation has increased slightly in recent months after a period of steady decline. Persistent inflation and a strong labor market suggest that tight global monetary conditions may persist for an extended period. The U.S. Federal Reserve now expects a slower pace of interest rate cuts compared to previous projections in September.
What is the base rate?
The base rate is the percentage at which the National Bank lends short-term funds to commercial banks and accepts their deposits. It plays a crucial role in setting borrowing costs for consumers and influences inflation levels in the country. In simple terms, the base rate serves as a benchmark for the economy, particularly for the banking sector. The National Bank adjusts the rate based on economic indicators, using it as a primary tool of monetary policy.
How does the base rate affect the economy?
The central bank uses the base rate to regulate the money supply and, ultimately, inflation. By raising or lowering the rate, the regulator influences economic activity. A lower rate injects more money into the economy, making loans cheaper for businesses, increasing investments, and stimulating economic growth. Conversely, raising the rate helps curb inflation by reducing the money supply and encouraging savings over spending and investment.
Impact of a rate cut on the tenge
A reduction in the base rate may weaken the national currency in the short term, as cheaper money can prompt investors to sell off tenge assets. However, economic growth and lower inflation could strengthen the currency in the medium term.
The next scheduled decision on the base rate by the National Bank’s Monetary Policy Committee will be announced on March 7.
Earlier, the National Bank of Kazakhstan announced that all commercial banks in Kazakhstan had transitioned to the new international standard ISO 20022 for data exchange between financial institutions.
