The National Bank of Kazakhstan left its benchmark interest rate unchanged at 15% at a meeting on June 6, after delivering a 200bps cut a month earlier.

The bank refrained from cutting the rate further as rising inflation outweigh worries over the slowing economy. Inflation has been running at double-digit figures over the past months to reach 16.7% in May, the highest level since the devaluation of the tenge in August 2015, when it was allowed to float freely. The tenge has strengthened by over 10% since late March, helping dedollarise the economy a bit. 

The central bank said it maintained its rate corridor at plus or minus one percentage point, meaning the interest on providing unlimited liquidity is 16% and on withdrawing liquidity is 14%, the bank’s Governor Daniyar Akishev told journalists on June 6.

With the monthly inflation rate falling to 0.5% in May from 0.6% in April, Akishev said that the pass through of devaluation had practically been exhausted and inflation was also falling in major trading partners, namely Russia. He noted that the National Bank expected inflation to stay within a target corridor of 6-8% in 2016 and 2017.

Akishev noted the tenge lost 2.5% against the dollar in May but gained 1.2% since the beginning of the year. In order to smooth the currency fluctuations, the National Bank bought $728.3bn on the domestic currency market in May against $830.9mn in April and $1.2bn in March. The bank bought $3.7bn in January-May. As a result, the gold and foreign currency reserves increasing by 3.2% to $28.8bn between January and May.

The strengthening of the tenge is prompting the population to convert their savings back into the national currency. In April, the population sold a net of $250mn and $550.3mn between January and April.

Tenge-denominated deposits increased by KZT461.6bn (nearly $1.4bn) in January-April, while deposits in foreign currency fell by KZT588bn. Akishev admitted that the strengthening of the tenge had played a role in the reduction of the tenge value of deposits in foreign currency. Without account of currency fluctuations, the tenge value of foreign-currency deposits fell by $404.7bn in January-April, which is lower than the increase in tenge-denominated deposits. The bank did not provide figures for total deposits or currency breakdown.

The level of the dollarisation of deposits fell from 70% in January to 60% in April, including from 80% to 71.7% for retail deposits.

The increase in tenge-denominated deposits expanded tenge liquidity resulting in a 0.2% increase in tenge loaning in April for the first time since October 2015, Akishev noted.