Kazakhstan’s central bank cut its key policy rate by 25 basis points to 10.25% on August 21. At the same time, the bank said it is aiming to maintain the rate four percentage points above the level of inflation.
The bank attributed the decision to expectations of declining inflation, but noted that uncertain and volatile external conditions decreased the likelihood of further cuts later down the year. The external conditions likely refer to the recently reinforced sanctions on Russia, which have put pressure on the tenge, as the Kazakh currency is closely tied to the Russian ruble.
Annual consumer price inflation in Kazakhstan slowed to 7.1% in July from the 17.7% rate experienced in July 2016, the State Statistics Committee said earlier. The moderation in inflation was in line with the Kazakh central bank’s expectations. It had predicted inflation would gradually slow to come close to the official target of 8% by the end of 2016 and stay within the range of 6%-8% in 2017. The bank is expecting inflation to ease to 5-7% in 2018 and 4-6% in 2019.
The bank noted last month that the undervalued real rate of the Kazakh national currency was supporting Kazakhstan's producers.