Kazakhstan’s central bank has pledged to try to keep inflation within the target corridor in 2016 and to make its monetary policy more transparent.

Speaking at a conference on corporate governance in Astana on March 30, Daniyar Akishev, governor of the National Bank, said that inflation would fade in 2016 after the annual rate reached 13.6% in 2015 and 15.2% at the end of February.

“The National Bank’s main efforts will focus on achieving an inflation target within a corridor of 6-8% in 2016,” he said, explaining that a 46% depreciation of the national currency, the tenge, had accelerated inflation, especially in the second half of 2015.

Under enormous pressure from falling commodity prices and the weakening ruble, the currency of Kazakhstan’s largest trading partner, the National Bank was forced to allow the tenge to float freely last August.

After depreciating to hit a historical low of KZT384.48 against the dollar on January 21, the tenge then appreciated by 10.6% until March 30, indicating that the bank’s February 1 decision to set a policy rate at 17±2% (providing liquidity at an interest rate of 19% and withdrawing liquidity at 15%) seems to be working.

“In these conditions the withdrawal of liquidity aimed to ensure balance on the money market,” the governor said. However, “we believe there have not yet been established necessary conditions to reduce the benchmark rate as the signs of stabilisation on the global oil market still bear an unsustainable nature and the annual inflation rate remains high in Kazakhstan.”

“As part of a successful implementation of monetary-credit policy the National Bank aims at making its operations transparent,” Akishev said, adding that the National bank will start publishing information on its interventions in the currency market “on a monthly basis” and information on its operations on the money market “on a daily basis” on April 1. The bank started publishing information on the balances of commercial banks’ tenge correspondent accounts at the central bank on February 1.

The governor noted that demand for cash dollars started falling in January when the population bought only $217mn. In February, for the first time in the past decade, the population sold a net $277mn. “We expect this trend to strengthen further in the near future,” he bragged. As a result, tenge-denominated deposits increased by KZT307.6bn (€7932mn), or 6.2%, in February-March, including retail deposits by KZT96bn (€247mn), or 6.7%. “This means the process of dedollarisation is acquiring a real scale,” he said.

Optimistic

Maria Disenova, an analyst at the Kazakh commercial Eurasian Bank, welcomed the central bank’s push for more transparency in its activities as this could calm down the markets and help to reduce volatility.

She also believes the decrease in domestic demand caused by a drop in real wages and expensive credit will contribute to slowing down inflation. Ordinary Kazakhs’ real incomes fell by 2.2% y/y in October, 5% in November and 7.8% in December 2015 and 3.5% in January 2016.

However, she warned that the National Bank’s inflation target was “optimistic based on current stability” on the currency market. “We might not yet have seen full pass through of devaluation to inflation which could cause inflation to stay at a heightened level,” Disenova told bne IntelliNews.

She said “another possible contributing factor could be the return of volatility to the oil market and subsequent volatility of the exchange rate which could then seep through to inflation. The stability we are seeing now could well be temporary and most of it is rather speculative than based on fundamental factors.”

At the conference, Governor Akishev also rapped Kazakh businesses, with the exception of commercial banks and state-owned companies, for failing to adopt modern corporate governance practices. Out of 2,347 joint-stock companies registered in Kazakhstan, “only 85” are listed, the governor moaned. Even then “the percentage of private industrial enterprises listed on the stock market doesn’t exceed 4%”. Akishev also noted that out of 2,981 industrial enterprises registered in the country only 63 were joint-stock companies.

“Historically, in Kazakhstan there has established a predominantly banking model of funding with the main instrument being a bank loan,” Akishev lamented. “However, the stock market has all the necessary infrastructure and is significantly reformed but was super-regulated when there were private pension funds.” In 2014 the Kazakh government forcibly merged nearly a dozen pension funds into the state-owned Unified Accumulative Pension Fund with assets worth KZT5.8tn as of the beginning of 2016.

Earlier this month the CEO of the Kazakhstan Stock Exchange (KASE), Alina Aldambergen, complained to bne IntelliNews that Kazakh companies were not prepared for going public despite reaching the point when they should start replacing bank funding with shareholder capital.

“For Kazakh companies it would be good to have another source of funding, making access cheaper and easier. But the problem is not only on the side of companies not wanting to go public but also lies in the lack of investors,” Disenova said. “And now is probably not the best time for boosting investor confidence, given the recent instability of the tenge and the experience of the Chinese stock market,” the analyst said, referring to the fall in the value of the Chinese stock market. “At the same time, the crisis is ripe with opportunities – opportunity to reform as, I am sure, lots of institutional and individual investors are looking for new investment ideas,” Eurasian Bank’s analyst suggested.