Kazakhstan makes a front-loaded cut to 16.25%, as window for further easing narrows
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%.
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.
How firms align with this view
Aligned with the desk view
Contrary positioning
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.
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.
Risks to this view
A reversal in this outlook could occur if inflationary pressures escalate unexpectedly, compelling the NBK to reconsider its path on rate adjustments. Such a scenario would be catalyzed by spikes in commodity prices or significant deterioration in external economic conditions.
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. As fiscal and external inflation pressures build, the strong tenge is becoming the main remaining source of disinflation and a key determinant of the easing cycle Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Dmitry Dolgin Chief Economist, CIS 16.25% NBK base rate a 50 basis point cut Lower than expected Slower current inflation opened the door for another cut... The National Bank of Kazakhstan surprised markets again, cutting the base rate by 50bp to 16.25%, a larger move than both our call and market expectations.
Unlike July, when the key question was whether improved confidence in fiscal discipline could justify a cut despite sticky inflation expectations, this time the picture is reversed: justification came from the inflation data itself. Annual CPI slowed to 9.8% year-on-year in August, re-entering single-digit territory, while households' inflation expectations declined. NBK makes another cut as CPI is back to single-digits and households' expectations normalise Kazakhstan CPI, households' 12M CPI expectations, and base rate Source: NBK, CEIC, ING "> Source: NBK, CEIC, ING ...but the guidance has tightened on additional fiscal stimulus Despite the larger move, we do not interpret today's decision as a signal that the NBK has become substantially more dovish.
In fact, the accompanying communication has become more cautious, with a direct message, that the room for further rate cuts is now limited. The central bank revised its 2027 inflation forecast higher to 6.5-8.5% from 5.5-7.5% previously (i.e. further away from the long-term target of 5%) and explicitly linked the revision to a less favourable external inflation backdrop, persistent risks regarding regulated prices, as well as stronger fiscal stimulus. While the more risky external environment is not a surprise and is in line with our global view on commodities, inflation, and rates, the renewed worries about domestic fiscal stimulus in Kazakhstan are new.
Until August, the central bank had been communicating confidence in the government's fiscal restraint (outside the quasi-fiscal stimulus), which was supported by a planned reduction in the national oil fund's outlays from KZT5.3tr in 2025 (3.3% GDP) to KZT2.8tr in 2026F. However, the official oil fund spending guidance for 2027-2029 has been recently increased to KZT3.5-4.4tr per year (or by KZT5tr in total compared to the previous three-year projections) due to additional targeted transfers for state spending priorities. This shift in the fiscal debate seems to have contributed to the NBK's higher inflation forecast for 2027.
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