Kazakhstan hikes main rate as food prices balloon

The National Bank of Kazakhstan raised the policy rate another 25 basis points to 9.5% in its September meeting, as food inflation climbed higher.

The central bank already pushed the main rate up 25bp two months ago in a bid to ease inflationary pressures. At the time, the board hinted at possible further tightening if inflation persisted.

Prices for goods and services surged by 8.7% in August from a year earlier, after posting annual growth of 8.4% in July, official data shows.

Food prices were the main driver for higher inflation, with a sharp annual growth of 11.4%. As food reserves have been depleted and the next harvest is yet to come, vegetable prices are rising rapidly, the central bank said. The price of potatoes, a staple food, grew by 26.1% from a year earlier.

High public inflation expectations, which stood at 8.8% in August, also contributed to the inflationary pressure, the NBK board said.

The global trend of rising inflation driven by rising demand and ongoing supply issues has put pressure on Kazakhstan’s economy, according to a statement published by the central bank on September 13. The NBK expects annual inflation to be 7.5% to 8.5% this year.

GDP in the first half of this year grew by 2.3% from a year earlier, data from the statistics bureau shows. The recovery in demand could lead to higher imports and consumption, said the central bank.

The NBK revised down the full-year growth forecast of Kazakhstan to a range of 3.5% to 3.8%, a cut of 0.1 percentage points from its June estimates.

Tackling inflation

Deputy governor Akylzhan Baimagambetov said in a statement that the main factors driving inflation were “non-monetary”.

The Kazakh government imposed a range of non-monetary measures to tackle inflation in September, hoping to cut food inflation to 8% by the end of this year.

Under the “anti-inflationary response package” introduced on September 7, the government will subsidise food producers, cut rents, offer cheap lending and purchase food through the state-controlled Food Contract Corporation.

To control non-food inflation, Kazakhstan will also consider imposing export restrictions on commodities, the government said.

“The NBK will continue to pursue a disinflationary monetary policy to ensure price stability,” said Erbolat Dosaev, governor of the NBK and the former deputy prime minister. Dosaev also proposed to begin the transition from administrative regulation of prices to targeted support of socially vulnerable groups in medium term, starting from 2023.

If the government’s measures are successful, the central bank could ease policy, the governor added.