Base-rate expectations (04/07/2023)

The rate of monthly price growth continues to exceed historical values. The current reduction in consumer inflation to 18.1% is mainly due to the technical effect in calculations and the strengthened tenge. Otherwise, we have not yet noted other disinflationary factors.

Inflation risks have only increased since the last Decision of the NBK to keep the base rate (02/27/2023). For example, expanding the funds for financial support was decided this year, and housing and utility services prices have increased. A pro-inflationary impulse is also expected from the projected increase in fuel prices soon. As we noted earlier, this Decision is a necessary measure taken to support the development of the industry and gradually neutralize the price asymmetry effect within the country and in neighbouring countries to avoid the risk of fuel outflow.

The inflationary environment has become less favourable and requires support from restraining monetary conditions for a while.

We do not yet assess the decline in household inflation expectations observed in February as a stable trend and we should not include the weakening of the inflationary environment either (there are no data for March 2023 upon publication). In addition, the recently published results of a macro survey of business representatives from the NBK show a deterioration in estimates of future inflation from 11.8% to 12.2%.

Keeping the base rate at the same level will allow managing risks that are now shifted towards deterioration, and will also reflect the hawkish direction of the regulator and correspond to its previous forward guidance.