The Monetary Policy Committee of the National Bank of Kazakhstan decided to keep the base rate at 9.00% per annum with an interest rate corridor of +/1.0 percentage points. Accordingly, the rate on standing access operations to provide liquidity will be 10.00% and on standing access operations to withdraw liquidity 8.00%. The Kapital.kz business information centre was informed about this by the press service of the National Bank.
The base rate was lowered from 9.50% to 9.00% in July 2020.
“The decision to leave the rate at the same level is due to the prevailing pro-inflationary pressure in the economy associated with the continuing imbalances in the food markets, high uncertainty in the external sector, as well as the presence of risks of accelerating inflation. The population's inflationary expectations are weakly anchored and remain at an elevated level. Along with this, a gradual weakening of the disinflationary effect on the part of consumer demand is expected, which will be due to the recovery of economic activity in the context of an improvement in the epidemiological situation,” the National Bank said.
The inflationary background in February 2021 remained unchanged, forming in accordance with the forecasts of the National Bank. The annual inflation rate amounted to 7.4%. The main contribution to inflation continues to be made by the acceleration of the food component, which grew by 11.6%. The growth of the non-food component and paid services amounted to 5.2% and 3.9%, respectively.
In the structure of food inflation, there is an increase in the cost of certain types of goods, including oils and fats, eggs, sugar, in conditions of limited supply, rising prices on world commodity markets, as well as prices of domestic producers. The slowdown in the growth of prices for meat and meat products, bakery products and cereals, which was observed in the previous months, stopped in February. Inflation is restrained by moderate growth rates of prices for non-food products due to restrained consumer demand and trends in consumer preferences towards cheaper products. In the structure of paid services, there is a decrease in tariffs for certain types of regulated housing and communal services. The rise in prices for personal services and leisure services continued.
Seasonally-adjusted core inflation accelerated in February 2021 and amounted to 8.3% annually. For the first time since May 2020, estimates of core inflation significantly exceeded headline inflation, which indicates that the risks of accelerating inflation amid rising food prices and a faster recovery in consumer demand remain.
Inflationary expectations of the population in February 2021 did not change, while remaining unstable and sensitive to imbalances in certain food markets. The quantitative estimate of inflation for the year ahead amounted to 6.7%. A high level of uncertainty remains among the respondents more than a third of the respondents, or 34%, found it difficult to assess their expectations.
In January 2021, business activity in a number of key sectors of the economy contracted, reflecting a deeper decline in GDP than expected, by 4.5%. A significant decrease was observed in the oil production sector, as well as in the transport and trade sectors. It should be noted that according to the leading indicator the business activity index, in February 2021 there was a recovery to 49.0 points, from 48.4 in January. According to the survey, enterprises in the real sector note an improvement in the business environment, the balance of answers on assessing current conditions, for the first time since January 2020, turned out to be positive, amounting to 0.4. For businesses, infrastructure, access to finance and credit, and business protection in general have improved. The demand for products/services and the tax burden remain factors that have a negative impact on the business environment.
The outlook for the global economy, including the economies of trading partner countries, has improved. The IMF predicts that global growth will accelerate to 5.5% in 2021, driven by the expected implementation of a stimulus package in large developed countries and a larger vaccination against COVID-19. The recovery dynamics in the economies of the trading partner countries of Kazakhstan will continue. The recovery of the Chinese economy will take place at a faster pace against the background of increased investment activity and consumption, as well as growth in exports. In the EU countries, economic recovery will be constrained by the persistence of restrictive measures in the fight against the coronavirus pandemic. In Russia, the OPEC+ agreement and weak domestic demand will constrain higher recovery growth.
Forecasts for the future dynamics of oil prices have been revised upward on the back of a recovery in the global economy and expectations for an increase in demand, including for commodities. Despite the decision taken by OPEC+ to maintain the level of oil production, the prospects for the development of the world oil market are still associated with uncertainty associated with the further dynamics of the pandemic, the effectiveness of vaccinations and further actions of the OPEC+ participants. Under these conditions, as a prerequisite for the forecast round February-March 2021, oil production in 2021 remained at 86 million tonnes, the price of Brent oil in the baseline scenario was increased from $45 per barrel to $50 per barrel until the end of 2021 and for 2022.
The National Bank has revised the forecasts for the growth rates of the economy downward in the current year, taking into account the current dynamics and the deterioration of the situation in certain sectors of the economy at the beginning of this year. In 2021, under the baseline scenario, economic growth will be 3.4%-3.7% yoy with an acceleration to 3.7%-4.0% yoy in 2022. The main contribution to economic growth will be made by the recovery of domestic demand against the background of rising incomes of the population, continued implementation of government anti-crisis programs and improved investor sentiment. A recovery in real exports is expected from the second half of 2021 in the context of an improving situation in the global economy and in Kazakhstan's trading partners. The expected recovery in imports as a result of expanding domestic demand will limit the contribution of net exports to GDP growth.
Annual inflation will slow down to the level of the upper limit of the target band of 4-6% in 2021 in accordance with the National Bank's estimates under the baseline scenario. This will be facilitated by the stabilisation of the situation in individual food markets and the exit from the calculation of high values of growth in prices for food products. As the domestic epidemiological situation improves and economic activity recovers, consumer demand is expected to expand, which will gradually exhaust the disinflationary pressure on the prices of non-food products and paid services. In the short term, pro-inflationary pressures from the external sector are expected to prevail against the backdrop of accelerating inflation in Russia to 5.7% in February of this year and the continuing growth in world food prices for nine months in a row, which led to multi-year highs in the FAO food price index. In the medium term, the inflationary background will remain moderate. This is evidenced by estimates of the formation of inflation indicators in trading partner countries near the target, as well as expectations for the normalization of the situation in the world food markets.
In general, the risks of accelerating inflation under the influence of internal and external factors continue to remain at a high level. Internal risks are associated with the persistence of imbalances in certain food markets and a faster-than-expected recovery in domestic demand. The main factor of external risks remains the deterioration of the situation with the coronavirus pandemic in the world against the background of the emergence of new strains and the risks of ineffective vaccination. Such a scenario could become an obstacle to the recovery of the world economy, cause a drop in oil prices and a disruption in the supply of goods and services. There is still a high risk of increased external inflationary background in the context of a more prolonged growth in world food prices. In addition, it is worth noting the continuing geopolitical risks associated with the strengthening of sanctions rhetoric against trading partner countries and a potential increase in volatility in the global financial markets, as well as a sharp decline in energy prices due to an increase in supply by OPEC+ countries and outside OPEC.
External monetary conditions in developed countries will continue to remain in the stimulating area in the medium term. The US Federal Reserve and the ECB continue to commit to a stimulating monetary policy. In developing countries, including the main trading partners of Kazakhstan, as inflationary processes accelerate, a transition to a cycle of rate increases is possible.
According to our estimates, in the baseline scenario, monetary conditions in the medium term will gradually return to neutral levels. The current balance of inflationary risks levelled the space for additional easing of monetary conditions. The National Bank has all the necessary tools and in the event of a significant deterioration in the prospects for further reducing inflation to the target level, it will take the necessary proactive decisions.
The next planned decision of the National Bank of Kazakhstan at the base rate will be announced on April 26, 2021 at 15:00 Nur-Sultan time.
Reported by Kapital (Kazakhstan).
