Kazakhstan macro: Concerned about inflation, the NBK turns more radical
A few days ago, the National Bank of Kazakhstan raised the base rate by 150 bps to 18%. While a rate hike was anticipated, its magnitude exceeded expectations, as markets predicted a 50-to-100 bps increase. The NBK cited rising inflation as its primary concern, as it reached 12.9% y-o-y in September vs 12.2% in August. On a m-o-m basis, inflation accelerated slightly, to 1.1% last month from 1.0% in August. The NBK also mentioned rising regulated prices, global food inflation and the tenge’s weakening as major concerns. On top of that the NBK referred to a VAT hike due in 2026 that could have a one-off effect on prices. Hence, its aforementioned decision, and the NBK hinted that it could raise the base rate even more at the end of November.
Interestingly, it looks as though the entire narrative in government circles has evolved; previously the main emphasis was on economic growth, while recent statements (including from the country’s PM) suggest that inflation appears to be the major concern as it became clear that budgetary spending would again increase massively in the coming months (October including), creating additional inflationary pressure. To put it simply, an extremely generous budgetary policy helps to keep wages growing fast enough in some segments of the economy. Growing wages encourage people to borrow and the economy keeps rolling on fast as total household debt is still low in percent to GDP. Hence the economy was so far able to tolerate high credit rates.
However, as inflation was high, on an aggregate level real incomes didn’t grow that fast in recent years, especially among low income groups of the population such as pensioners. Moreover, the Bureau of National Statistics reported that in July and 7M25 real income contracted y-o-y by 3.2% and 1.4%. If so, then it appears that the fast growing household consumption was fueled by the credit boom, and if this is the case, then the current rapid economic growth may not be sustainable, and the efficiency of budgetary policy is questionable.
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