Kazakhstan's central bank cut its policy rate to 12% from 12.5% on November 14 citing easing price growth. Further cuts, however, would be harder to justify, the bank said in a sign that its easing cycle might be coming to an end.
Kazakh annual inflation eased to 11.5% in October from a 16.6% hike in September, confirming the bank’s expectations that inflation is on a downward trend. The rate cut decision also reflects a “continuing pace of de-dollarization of bank deposits, and reduced inflation expectations of households”, the bank said in a statement.
October was the third straight month to see price growth easing. Previously, inflation had been on a rising trend for 11 months after the central bank’s decision in August 2015 to abandon its currency peg saw the tenge lose over 40% of its value against the US dollar. The Kazakh currency, however, recovered sharply in August and September on the news of OPEC’s agreement to consider a freeze in oil production in November. Increased confidence in the local currency saw the share of deposits in foreign currency decrease from 58.3% in September to below 57% in October 2016.
Since the beginning of the year, the bank bank cut its benchmark by a cumulative 500 basis points. The bank said further rate cuts would require “a more cautious approach and a thorough rationale”. “The risks for price stability and confidence in the tenge at lower levels of interest rates may increase,” the regulator added.
The central bank expects annual inflation to gradually ease to 8% by end-2016 and estimates it will remain within the bank’s target range of 6%-8% throughout 2017 in the absence of negative shocks. The bank's next monetary policy meeting is scheduled for January 9.