Kazakhs Hike Rate for First Time Since 2022 After Tenge Rout
(Bloomberg) -- Kazakhstan lifted interest rates for the first time since 2022, adding to efforts to stabilize the tenge amid concerns that a weakening national currency will spur another acceleration in inflation.
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The National Bank of Kazakhstan raised the benchmark to 15.25% from 14.25% in an earlier than scheduled announcement on Friday and said it had intervened in currency markets to help prop up the tenge. All economists surveyed by Bloomberg expected no change.
In a statement accompanying the decision, the central bank said it will consider tightening monetary policy further at its coming meetings “in order to quickly return inflation to the trajectory of a sustainable slowdown and achieve the target at 5%.”
The Kazakh authorities have been grappling with the economic fallout of Russia’s war on Ukraine and sanctions on its neighbor and second-biggest trading partner. The government has also boosted spending on infrastructure and improving living standards in recent years.
The tenge strengthened for the first time in three sessions, after dropping in recent days to its weakest level since March 2022 That has prompted the central bank to conduct interventions.
The bank sold $1 billion dollars worth of foreign currency since Nov. 16 — mostly in the last two days, Governor Timur Suleimenov said at a briefing after the decision. The bank is no longer intervening, and hopes the market finds balance independent of such purchases, he added.
Suleimenov denied that recent demand for foreign currency stemmed from speculators or Russian businesses, saying instead it was local in nature.
The bank last sold dollars to support the national currency in March 2022 in the aftermath of Russia’s full-scale invasion of Ukraine, when the tenge briefly weakened to a record low of 525.59 per dollar. Neighboring Russia’s central bank was forced to stop buying foreign currency under the budget rule on Wednesday after tougher sanctions triggered what the Kazakh monetary authority on Thursday called an “accelerated” weakening of the ruble.
The central bank raised its inflation forecast to 6.5%-8.5% for 2025, compared with an earlier outlook of 5.5%-7.5%, and added it now sees price growth returning to its target in 2027. The bank also revised its estimate for growth in Kazakhstan’s gross domestic product down to 4.5%-5.5% in 2025 from the 5%-6% level it saw earlier. The current-account deficit is set to reach 2.7% of GDP, more than triple the gap it previously expected.
The central bank, whose next policy meeting is scheduled for Jan. 17, set its rates corridor — formed from the overnight deposit and lending rates — at plus-or-minus one percentage point around the benchmark.
(Updates with central bank intervention starting in sixth paragraph.)
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