- What policy should central banks pursue to reduce inflation?

‘The current high inflation requires central banks to pursue a disinflationary policy. As the central bank rate grows, the cost of borrowing in the money market also ascends, which leads to higher rates of return in economy. Higher rates in the financial market will help transform the consumerist behaviour of the population into a more savings-oriented one. This will ‘cool down’ the demand for goods and services, decreasing inflation expectations and ultimately contributing to a gradual decline of inflation. Annual inflation in Kazakhstan has increased from 8.4% in the beginning of the year to 15.0% in July.’

- What is the Central Bank of Kazakhstan doing to reduce it?

‘Both external and internal factors play a part in the inflation acceleration. The National Bank of Kazakhstan continued its disinflationary monetary policy it began last year within the program of ensuring price stability. The base rate has been increased by 475 basis points from 9.75% to 14.5% since early 2022, which helped prevent the impact of the outside shock on the economy, excessive depreciation of the tenge exchange rate and further relocation to inflation, contributing to macroeconomic stability and protection of tenge assets.

At the same time, the sturdiness of current inflationary processes requires maintaining the base rate at current levels over a protracted period. This will stimulate savings behaviour among the population, which will in turn gradually affect inflation over the next year.

Therefore, the National Bank will continue implementing a disinflationary monetary policy, following the principles of the inflation targeting regime. The Bank will make all future decisions with the consideration of the compliance of the actual and forecasted inflation dynamics with its targets, internal and external risk balance and the effectiveness of measures taken by the Government of the Republic of Kazakhstan.’

AzVision.Az Analytical Group

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