Inflation slows further in June, NBK rate cut is on the agenda

KAZAKHSTAN - In Brief 03 Jul 2023 by Evgeny Gavrilenkov
The Bureau of National Statistics reported that inflation slowed in June to 0.5% m-o-m and 14.6% y-o-y. Food inflation fell to 15.8% y-o-y. Inflation is decelerating faster than expected, which is a good sign as it opens up an opportunity for the National Bank of Kazakhstan to cut its base rate. Traditionally, the NBK interest policy was not proactive and mostly traced inflation. Therefore, the regulator has an opportunity to cut the rate by 50-100 bps (from the current 15.75%). The tenge remains relatively stable against the dollar at $/KZT450. This level may look too strong as the already accumulated inflation was high enough and caused the tenge to appreciate in real terms against major currencies. Tenge’s real appreciation caused imports to soar in 2023 and the current account will be visibly negative this year. The NBK needs to find the right balance between the need to let the currency weaken moderately and the risk of entering another cycle of elevated inflation. Otherwise, at some point, a one-off depreciation of tenge of a greater magnitude may trigger inflation as happened regularly previously. Hence, the NBK may not decide to cut the base rate by 100 bps as a one-off move.

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