Kazakhstan May Lift Interest Rates, Boost Reserve Ratios to Cap Inflation

Mar 30. Bloomberg

By Daryna Krasnolutska and Nariman Gizitdinov

Kazakhstan May Lift Interest Rates, Boost Reserve Ratios to Cap InflationKazakhstan’s central bank may lift borrowing costs for a second time this year and boost reserve requirements to combat inflation that is breaching its target range, Governor Grigori Marchenko said.

“We will discuss the inflation forecast and a possible rate increase once again at April’s meeting,” Marchenko said in an interview in Prague yesterday. The regulator may revise its price-growth target from the current 8 percent, he said.

Policy makers in the biggest energy producer in central Asia raised the refinancing rate on March 9 for the first time since November 2007. The inflation rate jumped to 8.8 percent last month, the highest since April 2009. The regulator may also increase minimum reserve requirements for lenders in April or May to drain “excessive liquidity” held by banks, Marchenko said.

“Inflation is caused by changing world prices for oil and food,” Marchenko said while attending a financial conference in the Czech capital. “We see the same process we had in 2008, when inflation peaked, but on a smaller scale now.”

The National Bank of Kazakhstan has loosened currency controls, allowing the tenge to appreciate to damp inflation. It returned to a “managed” free float by abolishing the tenge’s trading corridor on Feb. 28.

The currency has gained 1.1 percent so far this year against the dollar, trading at 145.695 today, Bloomberg data show. The regulator has intervened on the domestic currency market, buying $1.8 billion in January, $2.7 billion in February and $1 billion so far this month to stem the appreciation, according to Marchenko.

‘Comfort Level’

“We don’t see any reason for the tenge’s sharp appreciation,” Marchenko said, adding he doesn’t expect the currency will rise above 140 per dollar this year. “We think the tenge’s rate will find its comfort level and it’s quite possible we have already reached it.”

The bank’s currency interventions won’t spur inflation because the regulator has been able to “sterilize” its tenge sales, he said.

“We can allow ourselves to sterilize our foreign currency interventions of $1 billion to $1.5 billion with no problems,” Marchenko said.

The dollar will probably account for a smaller share of the nation’s gold and foreign-currency holdings and the central bank plans to adopt a new strategy for reserve investments in the end of April, Marchenko said.

A stronger currency benefits the economy without undermining exporters because commodity prices remain high, he said.

“We have a situation when three main sectors of our economy win, or at least don’t lose,” Marchenko said. “One shouldn’t expect a sharp appreciation of the tenge as we will deal with it.”