Main markets contributed to Kazakhstan’s achievement of

Main concepts of the
Monetary Policy

Monetary policy occupies an important place in the
life of society. Monetary policy is one of the four major macroeconomic
instruments, based on the ability of the monetary system to influence the money supply and, accordingly, the interest rate, and
through it on investment and real GDP. The goal of
the monetary policy is to ensure stable economic growth, full employment of
resources, stability of the price level, balance of payments equilibrium. Monetary policy is implemented by
the central bank. However, the change in the supply of money in the economy
occurs, because of the operations not only of the central bank, but also of
commercial banks, as well as decisions of the non-banking sector (households
and firms). Tactical goals of the monetary policy of the central bank can be:
1) control over the supply of money (money supply); 2) control over the level
of the interest rate; 3) control over the exchange rate of the national
currency. The instruments
of the monetary policy are change in the norm of mandatory reserves; change in the discount rate of interest (refinancing
rates); open market operations.

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Macroeconomic situation of the

Preservation of favorable conditions in the world economy and on external
financial and trade markets contributed to Kazakhstan’s achievement of
sustainable economic growth and improvement of the macroeconomic situation in
the country. GDP
growth in Kazakhstan in January-May 2017 increased by 4.1%, compared with 2016.
Inflation since the beginning of the year amounted to 3.3%. Inflation
in annual terms fell to 7.5% compared with 16.7% in May 2016. Monthly inflation in May
2017 was 0.5%. The
volume of investments in fixed assets increased by 5.2% (5.5% in January-April
of this year, 3.1% in January-March of this year). The
growth is due to the implementation of industrial-innovative and infrastructure
projects. In
January-April, 2017, by sector, a significant increase in investments was
observed in agriculture by 26.3%, to 47.2 billion tenge (150 million USD) and
real estate transactions by 13.5%, to 251.8 billion KZT (796 million USD). The
average nominal cash income of the population in January-April 2017 amounted to
308.4 thousand tenge and increased by 8.2% in nominal terms in comparison with
the corresponding period of 2016, in real terms by 0.5%. In
these conditions, the main activities of the National Bank on monetary policy
were aimed at ensuring low inflation rates and maintaining a stable nominal
exchange rate of tenge. the
growth of the gross domestic product (GDP) of Kazakhstan in 2018 is expected at
the level of 5%.

Orientation of the Monetary

Since 2002, the benchmarks of monetary policy have been aimed at achieving
relative macroeconomic stability in the country. The
main direction of the monetary policy of the NBK in this period was preparation
and transition to the principles of inflation targeting, which implied a
gradual departure from the target values ??for the monetary base of the gold
and currency reserve to the main inflation indicators. Such
monetary policy meets the main objective of the NB to reduce inflation and,
moreover, provides it with a greater confidence of market participants and the
pursued monetary policy. The
experience of countries shows that the following factors are the basis for
successful introduction of the system of inflation target indicators:

-Sustainable budget
of macroeconomic stability;
-Stability of
the financial system;
of the Central Bank;
understanding of the interrelations between the instruments of the Central Bank;
In 2016-2017, the monetary policy of the NBK was aimed at ensuring the internal
and external stability of the tenge. The
main goal of the monetary policy of 2017 was to keep inflation at around 6%. To
achieve these goals, the pulp and paper mill used open market operations and
re-accounting operations with promissory notes as its main instrument. The
persistence of inflation in these limits was facilitated by substantial
economic growth, accompanied by high consumer demand and investment activity. The
significant growth of monetary aggregates contributed to the persistence of
inflation in the economy. The
consequence of high consumer demand was an increase in cash in circulation by
59% to 379.3 billion. In order to prevent a significant strengthening of the
real exchange rate of the tenge, as well as to smooth fluctuations in the
exchange rate, the NBK participated in the domestic foreign exchange market as
a buyer. The international reserves of the country as of January 1, 2017
amounted to 90.8 billion US dollars and from the beginning of 2016 decreased by
0.6%, including the National Fund assets in foreign currency from the beginning
of 2016 decreased by 3.9% to 61, 0
billion US dollars. Gold
and foreign currency assets of the National Bank amounted to 29.8 billion US
dollars and since the beginning of 2016 grew by 6.9%. In order to contain
inflation growth rates, the NBK in 2017 took measures to strengthen the
regulatory impact of official rates. To
increase the role of the refinancing rate since 2004, the bills are
re-accounted in accordance with the official refinancing rate.

Instruments of
Monetary Policy

Official refinancing rates. The National Bank of Kazakhstan sets an
official refinancing rate depending on the overall state of the money market,
the demand and supply of loans, inflation and inflation expectations. The
official refinancing rate is a benchmark for remuneration rates for major
monetary policy operations. The official refinancing rate for the 16 January
2018 is 9,75%. The official refinancing rate was decreased (compared to the
year 2017). As the level of inflation rate became lower to the end of 2017, the
National Bank decided to reduce the official refinancing rate.

Minimum reserve requirements. To ensure the
balance of the money market and regulate the liquidity of banks, the norm of
banks’ mandatory reserves was reduced from 10 to 8% of the total deposit
liabilities of the bank to non-bank legal and natural persons. Reducing the
minimum reserve requirements did not lead to a weakening of the protection of
the interests of depositors and creditors of banks, but, on the contrary,
allowed banks to more effectively manage the funds raised and increase lending
to the real sector of the economy.

Open market operations. In order to regulate
liquidity in the banking system and sterilize the money supply in 2015, the
National Bank carried out the transactions in the open market for the purchase
and sale of securities, to repurchase and reverse repurchase transactions.

Loans of the National Bank. In 2015, the National
Bank provided loans for KZT 1401 million, of which KZT 1311.2 million to
second-tier banks, and KZT 89.8 million to organizations. To finance the gold
mining industry – the “ABS Balkhash” enterprise, a consortium of
banks has been established on the principles of syndicated bank lending. The
National Bank assumed partial financing of this consortium (KZT 699.2 million or
$ 4.9 million). In connection with the repayment by the National Bank of the
debt to the EBRD, the loan was repaid by the National Bank of Kazkommertsbank
OJSC as part of the EBRD loan for the SME development program. Based on the
Consortium Agreement, this loan was reissued into a bank loan for $ 4.3 million.
The granting of a special-purpose loan for building the reserve center of the
KISC payment system was continued. The National Bank carried out work on the
practical implementation of a system for the recalculation of bills.
First-class issuers of promissory notes – CJSC NAK Kazatomprom and
Kazakhtelecom OJSC were determined, General agreements on rediscounting
promissory notes with 12 banks were concluded. As early as December 2015, 6
promissory notes of ZAO NAC Kazatomprom were redeemed for a maturity of up to 6
months at KZT7.1 million. The National Bank concluded an overnight loan
agreement with 17 second-tier banks. The limits for obtaining overnight loans
at the National Bank were reported to banks on a monthly basis, however, due to
sufficient liquidity of the banking system in 2015, banks did not apply for an
overnight loan. The return of credits was 238.2 million tenge. Monthly
classification of the loan portfolio was carried out and provisions were
created. More than 80% of borrowers who have overdue debts on bank loans of the
National Bank are currently in liquidation procedure, or bankruptcy procedure
was applied to them. Overdue debts on them totaled 4.7 billion tenge, the
amount of debt on the main debt – 2.2 billion tenge. The borrowers returned
unprofitable bank loans by 2.1 million tenge. In connection with the completion
of the liquidation process, the overdue debt on 9 banks (KZT0.8 billion), which
has a debt on bank loans of the National Bank, was canceled. In addition, the
debts of the institutions of the Ministry of Internal Affairs were canceled by
KZT 71.9 million. For all borrowers, the National Bank carried out claims and

Monetary aggregates

The behavior of monetary aggregates during the reporting period was due to
the nature of past trends.
The monetary base. The increase in the national currency of the National Bank of the United
Kingdom by 37.6% to $ 2,093.9 million. However, the monetary base expanded only
5.7% to 134.0 billion tenge. This was due to the fact that, starting from the
second half of the year, the National Bank intensified operations to sterilize
excess liquidity. The growth in net international reserves of the National Bank
was neutralized by an increase in the volume of short-term notes in circulation
by 7.9 times (or by 43.0 billion tenge) and by an increase in the Government’s
deposits by 2.3 times (or by 26.8 billion tenge).

Money supply. The dynamics of the assets of the banking system was positive. Thus, net
external assets of the banking system grew by 15.9% (or by $ 294.9 million),
while internal assets of the banking system increased by more than 5.2 times
(or by 71.3 billion tenge). The growth of domestic assets of the banking system
was due to a significant increase in demand for other sectors of the economy by
more than 1.8 times (or by KZT 137 billion) (despite a decrease in net claims
to the Government of the banking system 26.9% and net other of the assets of
the banking system – by 30%). All these factors contributed to an increase the
amount of money supply by 45.9% to KZT 399.5 billion.

Main targets of the Monetary Policy in the year 2018

Based on the current situation in Kazakhstan and the
world oil markets, the main objective of the NBK will be to ensure price
stability. Existing
in recent world markets have a positive impact on the macroeconomic development
of Kazakhstan and at the same time cause a number of problems. One
of them is the excess liquidity of the banking system, including external
borrowings of enterprises in the real sector and commercial banks, which leads
to rapid growth of loans in the economy. The
situation is exacerbated by a significant influx of foreign investment, as well
as an increase in public budget expenditures in recent years. In
these conditions, a threat of overheating of the economy is possible.
    The goal of
monetary policy will be to keep inflation. To
achieve this goal, the NBK is strengthening its impact on monetary policy
operations to further enhance the regulatory role of its key rates. The
NBK’s actions foreseen in the near future will affect the liquidity of the
banking system, which coincides with the interim goals of the monetary policy
pursued by the NBK. Despite
the envisaged measures to limit liquidity in the next three years, the annual
growth of monetary aggregates will ensure the preservation of the existing
rates of economic growth.
tightening of monetary policy implies a change in the direction of influence of
official NBK rates on market rates on loans. If
in previous years the NBK measures were aimed at resolving the task of boosting
the activity of banks in lending to the economy, including reducing rates,
then, in the circumstances of the need to prevent overheating of the economy,
the issue of rate reduction is no longer set as an end in itself.



The main goal for the monetary policy of the republic of Kazakhstan will be
maintaining the medium-term inflation target –below 4%. National Bank will
focus on stability functioning of the economy; price stability and improving
indicators of the yield curve.


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