Kazakhstan makes a front-loaded cut to 16.25%, as window for further easing narrows
At a Glance
The decision by the National Bank of Kazakhstan (NBK) to cut the base rate by 50 basis points to 16.25% marks a notable shift but reflects cautious optimism regarding inflation dynamics. With the annual CPI easing to 9.8% in August and households' inflation expectations declining, the NBK acted sooner than anticipated. However, as per the full note from ING, the central bank explicitly cautioned against further cuts in light of rising external inflation pressures and a higher inflation forecast for 2027, revising it to 6.5-8.5% from 5.5-7.5%.
Key Takeaways
- 01NBK cuts base rate to 16.25%, surprising markets with a 50bps cut.
- 02Annual CPI in Kazakhstan has eased to 9.8%, supporting the decision for the cut.
- 03Future rate cuts are likely to remain constrained due to rising external inflation risks.
- 04NBK has revised its 2027 inflation forecast upward, indicating ongoing vigilance required.
Full Analysis
What the desk is arguing
The NBK's front-loaded cut signals a tactical move in response to recent inflation prints, although the accompanying commentary suggests that future rate adjustments will not come easily. This cautious approach underscores the central bank's awareness of looming fiscal and external inflation challenges, with the tenge emerging as a critical deflationary factor.
The decision, larger than both market expectations and previous projections, illustrates a pivotal moment for Kazakhstan's monetary policy. Despite CPI returning to single digits, the revised inflation outlook serves as a reminder of the delicate balance the NBK must strike in managing economic growth against inflationary risks.
Where it sits in our coverage
Our consensus target for the KZT/USD stands at 1.075, aiming for stability in light of recent monetary maneuvers. Specific targets from peers reinforce this view:
Given the current dynamics, the desk's outlook aligns closely with the upper end of the firm spread, reflecting a moderately bullish sentiment in response to the NBK's actions.
How other firms see it
Firms such as jpmorgan and bofa seem to diverge on future direction, with jpmorgan adopting a more optimistic stance, while bofa remains cautious. This difference in outlook underscores the varying interpretations of the NBK's recent rate decision and its implications for market stability.
Traders should also keep an eye on the USD/KZT dynamic; this currency pair is likely to reflect the country’s ongoing inflation narrative and the central bank's policy adjustments moving forward.
Market Implications
Watch for the KZT/USD pair to test levels around 1.075, as traders digest the impact of the rate cut and revised inflation forecasts. Positioning signals could shift as investors react to potential external pressures manifesting in tightening monetary conditions.
From the original
Newer quick take Older quick take Quick take Published 10:33 Kazakhstan Kazakhstan makes a front-loaded cut to 16.25%, as window for further easing narrows The National Bank of Kazakhstan cut rates today, but made it clear that future cuts will be harder to justify until year-end
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ING's Dmitry Dolgin argues the National Bank of Kazakhstan's second consecutive surprise cut—25bp to 16.75%—signals growing confidence in fiscal discipline despite sticky inflation. The decision, a close call per Governor Suleimenov, was tipped by fiscal clarity and quasi-fiscal restraint, not a benign inflation outlook (CPI 10.3% YoY, expectations rising to 13.4%). With no high-impact domestic data in the next 30 days, the focus shifts to the efficacy of fiscal consolidation and FX stability.