Kazakhstan cuts by 50bp as the region continues to defy global hawks
Kazakhstan's recent rate cut of 50 basis points to 15.75% signifies a notable divergence from the prevailing global hawkish sentiment, highlighting the National Bank of Kazakhstan's (NBK) confidence in its domestic economic resilience. Per the full note from ING, the central bank's decision comes against a backdrop of improving inflation dynamics and tenge strength, which appears to have mitigated some external pressures. The NBK's action supports their view of local economic stability, especially as CPI has softened to a year-on-year rate of 9.3%, which is below expectations. This move positions Kazakhstan distinctly amidst a region often constrained by global inflationary trends, suggesting potential for further monetary easing if conditions remain stable.
What the desk is arguing
The desk interprets Kazakhstan's decision to cut rates as a strong signal of domestic economic resilience, countering global trends. The NBK's reduction indicates confidence in its ability to manage inflation, particularly as household inflation expectations have improved.
Supporting evidence for this perspective includes the reported CPI decline to 9.3% year-on-year, which not only exceeded market forecasts but also reflects a broader trend of disinflation that is supportive of consumer spending and growth.
The alternative read would be that external pressures and global inflation could eventually hinder this momentum, but recent data suggests resilience for now.
Where it sits in our coverage
As of now, we have a consensus target of 1.075 for the tenge against the dollar, with our range pegged between 1.04 and 1.12. Notable firms include: - jpmorgan: 1.10 for Mar26 - bofa: 1.04 for Mar26
This outlook aligns with jpmorgan's target, positioned roughly at the upper bound of market expectations, contrasting with bofa's more bearish stance.
How other firms see it
Firms like jpmorgan and hsbc are aligned on the bullish outlook for the tenge, indicating optimism about further rate cuts under stable economic conditions. Conversely, bofa presents a more cautious approach, emphasizing potential vulnerabilities stemming from heightened global inflationary pressures.
Watch the USD/KZT pair closely, as its movement will likely reflect the impact of local monetary policy shifts and external economic dynamics influencing the tenge's strength.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Kazakhstan cut its base rate by 50bp to 15.75%, defying global hawkish trends.
- 02CPI reduced to 9.3% YoY, indicating improved inflation conditions and consumer sentiment.
- 03The tenge's strength plays a crucial role in domestic disinflation efforts.
- 04Expect potential for further easing if economic stability persists.
Market implications
Traders should monitor the USD/KZT exchange rate closely, particularly as the recent rate cut may create upward pressure on the tenge. Investor sentiment may shift further if CPI trends continue to show improvement.
Risks to this view
A significant risk to this outlook would be an unexpected resurgence in global inflation or tightening from major central banks, which could pressure the tenge and reverse the NBK's course. Additionally, political instability or economic shocks could undermine confidence in the domestic market.
Older quick take Quick take Published 11:41 Kazakhstan Kazakhstan cuts by 50bp as the region continues to defy global hawks Kazakhstan's central bank cut its base rate by 50bp to 15.75%, as the domestic economy and markets continue to defy the global hawkish turn. But resilience is not immunity; with disinflation still relying heavily on a strong tenge, real rates will need to stay high. NBK's next decision will most likely be a hold The National Bank of Kazakhstan in Astana.
Kazakhstan has shown strength in the face of global shocks, but resilience is not immunity 15.75% NBK base rate a 50 basis point cut Lower than expected Kazakhstan continues to defy the global hawkish turn The National Bank of Kazakhstan (NBK) cut its base rate by 50bp to 15.75% , at the dovish end of the 25-50bp range of market expectations and a stronger move compared to our cautious 25bp call. We saw room for another cut thanks to lower inflation, improving inflation expectations and continued tenge strength, but expected the worsening global rates backdrop to encourage a smaller step. Instead, the NBK opted against shortening the step compared to the September decision amid continuing improvement in domestic conditions.
Annual CPI slowed to a below-expected 9.3% year-on-year, while inflation expectations of households and economists continued to improve. Today's decision therefore reinforces our broader view that Kazakhstan, similar to some of its neighbours in the region, has so far proved relatively resilient to the deterioration in the global inflation and rates story. NBK makes another 50 bp cut as actual CPI and inflation expectations continue to soften Kazakhstan CPI, households' 12M CPI expectations, and base rate Source: NBK, CEIC, ING "> Source: NBK, CEIC, ING The tenge remains key to the domestic disinflation story That resilience is likely to be tested, as underlying price pressures in Kazakhstan remain significant.
Disinflation remains concentrated in the food segment, while non-food and services parts of the consumer basket are showing stickier price growth. Despite the overall slowdown, CPI still remains significantly above the 5% target. Domestic demand, despite recent moderation in GDP growth, remains robust and supported by fiscal and quasi-fiscal measures.
This makes Kazakhstan's disinflation story increasingly reliant on the tenge, which has rallied 11% against the US dollar since the outbreak of the Iran war and by 20% YoY, insulating Kazakhstan from other price pressures. This view seems to be confirmed by the NBK, as the central bank makes a direct link between favourable inflation dynamics and the exchange rate. While we have a constructive view on the tenge for the medium term, its dependence on volatile portfolio flows and commodities should be seen as a watch factor.
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