Kazakh c.bank cuts rates as inflation dips

Feb 14. Reuters. ALMATY

By Mariya Gordeyeva

* Cuts by 50 bps to 7 pct; first revision since March 2011
* C.bank governor says further cut could come in April
* Annualised inflation in Jan 2012 lowest since Nov 2009
* High oil prices underpin Kazakh growth

Kazakh c.bank cuts rates as inflation dipsKazakhstan’s central bank dropped interest rates on Tuesday for the first time since 2009 and said it could cut them again in April, responding to a dip in inflation to shore up an already fast-growing economy fuelled by high oil prices.

The bank cut its key refinancing rate by 50 basis points to 7.0 percent after inflation in Central Asia’s largest economy slowed to an annualised 5.9 percent in January.

That was its lowest level since November 2009 and sharply down from December’s 7.4 percent.

“If the level of inflation is the same, I think we could lower the refinancing rate again in April,” bank governor Grigory Marchenko told a news conference.

The change reverses a 50 basis-point increase made in March 2011 with the aim of curbing then-rising price pressures.

Kazakhstan, which holds about 3 percent of the world’s recoverable crude reserves, forecasts inflation within a range of 6 percent to 8 percent every year until 2015. Marchenko said there were no immediate plans to revise this target.

Its economy expanded by 7.5 percent in 2011 and is expected to grow 6.9 percent this year, benefiting from high prices for oil and other commodities.

The country is comfortably the largest former Soviet oil producer after Russia and also leads the world in uranium mining.

Brent crude has been at over $100 a barrel for most of the last year – it traded around $117 on Tuesday – helping to swell Kazakhstan’s National Fund for collecting windfall oil revenues to more than $45 billion from $31 billion a year ago.

Credit agencies Standard & Poor’s and Fitch upgraded Kazakhstan’s sovereign rating in November to BBB+ and BBB respectively, above troubled euro zone states such as Portugal and Greece, which have skidded from A ratings since the euro debt crisis began.

“Kazakhstan is in a favourable situation. We need to use this,” Marchenko said.


President Nursultan Nazarbayev, who has ruled Kazakhstan since before independence in 1991, used his annual state-of-the-nation address last month to unveil a series of major industrial projects that would draw on the oil fund.

These include construction of a gas-processing plant, a $2.3 billion power station and a $6.3 billion petrochemical complex, as well as the $1.7 billion modernisation of an oil refinery near the Caspian Sea.

Though the president and the government, not the central bank, will decide how the fund’s money is spent, Marchenko said he favoured partnerships between private investors and the state.

“From our point of view, the optimal structure is where a strategic investor would supply 51 to 60 percent, or maybe more, of the finance for any given project,” he said.

“The National Fund could put up part of the finance, say 20 percent, and the remainder could be raised by issuing special bonds for pension funds, guaranteed by the state.”

Marchenko said he did not believe any major projects would need to draw on the National Fund this year. He also proposed the creation of a structure involving international financial corporations to help oversee investments.

Kazakh inflation slowed to 7.4 percent last year from 7.8 percent in 2010. Food prices rose by 11.9 percent in 2011, while non-food prices rose by 5.4 percent and services by 6.8 percent.

“Last time, inflation was within the corridor, in the upper range. If it falls within the lower range of the corridor this year, say 6.2 percent or 6.3 percent, that would be very good and it would be possible to revise this corridor,” Marchenko said.

“For now, we will leave it as it is.”

The central bank last cut interest rates, also from 7.5 percent to 7 percent, in September 2009.