Further significant reduction in the base rate of the national Bank of Kazakhstan will have negative consequences for the economy in the long term – the head of the Central Bank
The national Bank of Kazakhstan, in April lowered its key interest rate to 9.5% per annum, has no plans for its further reduction, since it is, in the opinion of the regulator, will have negative consequences for Kazakhstan economy in the long term.
“The current level of base rate in real terms, that is, minus the actual annual inflation rate (6.8 percent in April), below a neutral equilibrium level of 3-3. 5%. And given the revised inflation forecast to 9-11% in the current year, the actual base rate may be even lower, down to zero”, – stated in the published response of the Chairman of the national Bank Yerbolat Dossayev at the request of the deputies of the Parliament, urged the national Bank to lower the base rate to start lending to the economy at 3-4% per annum.
“In these circumstances, further significant reduction in the base rate of the national Bank will have negative consequences for the economy in the long term. Notable among them are the change of currency preferences in favor of savings in foreign currency and the growth of devaluation expectations, a systematic failure to achieve the inflation target and the low trust of the population and market to monetary policy, increased uncertainty for the economic agents and the higher risks for the banking system,” – said Dosayev.
The head of the regulator noted that a significant reduction in the base rate will also lead to a decrease in the resource base of the banking system.
As the head of the national Bank, the decision to reduce the base rate may not be the main measures to revive the economy.
“For quality and sustainable growth an important structural transformation of the economy and its diversification, while monetary policy has no tools to resolve structural problems. The monetary policy instruments is effective for smoothing deviations from the long-term trends in the economy that occurs under the influence of various macroeconomic shocks”, – concluded the Minister.
The base rate of 9.5% per annum has been operating in Kazakhstan since April 6. Prior to that, she almost a month remained at the level of 12% per annum, and earlier was 9.25% per annum.
The next planned decision of the national Bank base rate will be announced on 8 June.