Kazakh c.bank eyes rate cuts to match inflation slowdown
June 7. Reuters. ALMATY
By Mariya Gordeyeva
* Central bank governor says annual inflation around 5 pct
* Bank will consider cutting rates for 4th time in 2012
* Current 6 pct refinancing rate is historic low
Kazakhstan’s central bank expects to cut interest rates, already at historic lows, further this year to match a new era of slower inflation and shore up the oil-fuelled growth of central Asia’s largest economy, the bank’s governor said on Thursday.
The central bank is prepared to cut its refinancing rate, currently at 6.0 percent, for the fourth time this year should annual inflation hold for the next few months at current levels of about 5 percent, Grigory Marchenko told reporters.
“We now have 12-month inflation of 5 percent. If it holds at this level for the next few months, we will consider lowering the rate to 5.5 percent,” Marchenko said. A subsequent cut to 5.25 percent was also possible in the event of stable inflation.
Kazakhstan, a former Soviet republic five times the size of France, holds 3 percent of the world’s recoverable oil reserves.
An interest rate cut in February was the country’s first since 2009. Two subsequent reductions, most recently on June 4, have brought the rate down to a historic low of 6.0 percent from 7.5 percent at the beginning of this year.
“We have sent an unambiguous signal to the market that rates – the value of money in general, interest rates on deposits and loans – should be reduced,” said Marchenko, who was backed last year by former Soviet states as a candidate to head the IMF.
Marchenko, in his second spell as central bank governor, said Kazakhstan was emerging into a new era of lower inflation after averaging annual consumer price growth of slightly over 7 percent in the last decade.
Inflation in Kazakhstan was 7.4 percent last year, compared with 7.8 percent in 2010. The government has forecast consumer price growth within a range of 6 percent to 8 percent in each of the next four years.
Though Marchenko did not explicitly revise this corridor, he said current inflation rates hinted at slower consumer price growth over the next few years.
“The long-term trend is positive,” he said. “If we are now entrenched in a range of between 5 percent and 5.5 percent or 6 percent, it’s better than 7.3 percent,” he said.
“And from that level of 5 to 6 percent, we could be down to 3 or 4 percent in a couple of years.”
Kazakhstan’s economy expanded by 7.5 percent in 2011 and both the government and the IMF forecast 6.0 percent growth this year. The world’s largest uranium miner, Kazakhstan is also comfortably the largest former Soviet oil producer after Russia.
Brent crude has traded at over $100 a barrel for most of the last year, helping swell Kazakhstan’s National Fund for collecting windfall oil revenues to more than $51 billion by the end of May, 18 percent more than at the end of 2011.
The state budget is premised on a Brent crude price of $85 per barrel. On Thursday, Brent was trading either side of $100 a barrel.
The central bank has bought more than $2 billion on the foreign exchange market this year to prevent the tenge currency from appreciating too quickly, helping oil and metals exporters which contribute to economic growth.
The central bank said on Thursday it would increase the share of gold in its foreign reserves to 15 percent from about 12 percent, a day after announcing plans to cut its holdings in the ailing euro by a sixth.
Marchenko said Kazakhstan’s economy would continue to grow.
“We will continue to live well if the current situation on external markets persists. If before it was very good for us, now it’s simply good. Economic growth will continue,” he said.
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.