The National Bank of Kazakhstan has reduced the base rate to 9.00% p.a., according to the NBRK press service.
"The National Bank of the Republic of Kazakhstan resolved to reduce the base rate to 9.00% per annum with narrowing of the interest rate corridor to +/- 1.5 pp. Accordingly, the rate on liquidity provision standing facilities will be 10.5% and on liquidity withdrawal standing facilities 7.5%", the message says.
According to the press service, the reduction in the base rate is due to the weakening of pro-inflationary risks and a stronger contraction in economic activity in 2020 H1 than expected in the forecast round of May-June of this year. The measures taken to tighten quarantine will have an additional disinflationary effect.
"At the same time, core inflation and median inflation in June 2020 demonstrate more moderate dynamics - 6.1% and 4.4%, respectively. It is noted that the risks of dollarization growth have significantly decreased, which has expanded the potential for rate cuts. Due to prompt measures to protect tenge, over the 6 months of the current year, the dollarization of deposits decreased from 43.1% to 40.0% according to preliminary data, which also favors the possibility of lowering the base rate.
The narrowing of the corridor is necessary for stabilisation of the situation in the financial markets and gradual adaptation of the economy to new conditions. This decision is expected to reduce the volatility of money market rates and help create more stable expectations among market participants.
The new base rate will, to a certain extent, compensate for the increased credit risks by reducing the cost of loans. The current decision will mitigate the impact of the consequences of tightening quarantine measures on the Kazakh economy and support the recovery of growth in the Kazakh economy.
By Ekaterina Eliseeva for the Kazakhstanskaya Pravda.
