Main concepts of theMonetary PolicyMonetary policy occupies an important place in thelife of society. Monetary policy is one of the four major macroeconomicinstruments, based on the ability of the monetary system to influence the money supply and, accordingly, the interest rate, andthrough it on investment and real GDP. The goal ofthe monetary policy is to ensure stable economic growth, full employment ofresources, stability of the price level, balance of payments equilibrium. Monetary policy is implemented bythe central bank. However, the change in the supply of money in the economyoccurs, because of the operations not only of the central bank, but also ofcommercial banks, as well as decisions of the non-banking sector (householdsand 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 levelof the interest rate; 3) control over the exchange rate of the nationalcurrency.

The instrumentsof the monetary policy are change in the norm of mandatory reserves; change in the discount rate of interest (refinancingrates); open market operations. Macroeconomic situation of the Preservation of favorable conditions in the world economy and on externalfinancial and trade markets contributed to Kazakhstan’s achievement ofsustainable economic growth and improvement of the macroeconomic situation inthe country. GDPgrowth in Kazakhstan in January-May 2017 increased by 4.1%, compared with 2016.Inflation since the beginning of the year amounted to 3.3%. Inflationin annual terms fell to 7.

5% compared with 16.7% in May 2016. Monthly inflation in May2017 was 0.5%. Thevolume of investments in fixed assets increased by 5.

2% (5.5% in January-Aprilof this year, 3.1% in January-March of this year). Thegrowth is due to the implementation of industrial-innovative and infrastructureprojects. InJanuary-April, 2017, by sector, a significant increase in investments wasobserved in agriculture by 26.

3%, to 47.2 billion tenge (150 million USD) andreal estate transactions by 13.5%, to 251.8 billion KZT (796 million USD). Theaverage nominal cash income of the population in January-April 2017 amounted to308.4 thousand tenge and increased by 8.2% in nominal terms in comparison withthe corresponding period of 2016, in real terms by 0.

5%. Inthese conditions, the main activities of the National Bank on monetary policywere aimed at ensuring low inflation rates and maintaining a stable nominalexchange rate of tenge. thegrowth of the gross domestic product (GDP) of Kazakhstan in 2018 is expected atthe level of 5%.

Orientation of the MonetaryPolicySince 2002, the benchmarks of monetary policy have been aimed at achievingrelative macroeconomic stability in the country. Themain direction of the monetary policy of the NBK in this period was preparationand transition to the principles of inflation targeting, which implied agradual departure from the target values ??for the monetary base of the goldand currency reserve to the main inflation indicators. Suchmonetary policy meets the main objective of the NB to reduce inflation and,moreover, provides it with a greater confidence of market participants and thepursued monetary policy.

Theexperience of countries shows that the following factors are the basis forsuccessful introduction of the system of inflation target indicators:-Sustainable budgetsituation;-Guaranteesof macroeconomic stability;-Stability ofthe financial system;-Independenceof the Central Bank;-Sufficientunderstanding of the interrelations between the instruments of the Central Bank;-Informationopenness.In 2016-2017, the monetary policy of the NBK was aimed at ensuring the internaland external stability of the tenge. Themain goal of the monetary policy of 2017 was to keep inflation at around 6%. Toachieve these goals, the pulp and paper mill used open market operations andre-accounting operations with promissory notes as its main instrument. Thepersistence of inflation in these limits was facilitated by substantialeconomic growth, accompanied by high consumer demand and investment activity. Thesignificant growth of monetary aggregates contributed to the persistence ofinflation in the economy.

Theconsequence of high consumer demand was an increase in cash in circulation by59% to 379.3 billion. In order to prevent a significant strengthening of thereal exchange rate of the tenge, as well as to smooth fluctuations in theexchange rate, the NBK participated in the domestic foreign exchange market asa buyer.

The international reserves of the country as of January 1, 2017amounted to 90.8 billion US dollars and from the beginning of 2016 decreased by0.6%, including the National Fund assets in foreign currency from the beginningof 2016 decreased by 3.9% to 61, 0billion US dollars. Goldand foreign currency assets of the National Bank amounted to 29.8 billion USdollars and since the beginning of 2016 grew by 6.9%. In order to containinflation growth rates, the NBK in 2017 took measures to strengthen theregulatory impact of official rates.

Toincrease the role of the refinancing rate since 2004, the bills arere-accounted in accordance with the official refinancing rate.Instruments ofMonetary PolicyOfficial refinancing rates. The National Bank of Kazakhstan sets anofficial refinancing rate depending on the overall state of the money market,the demand and supply of loans, inflation and inflation expectations. Theofficial refinancing rate is a benchmark for remuneration rates for majormonetary policy operations.

The official refinancing rate for the 16 January2018 is 9,75%. The official refinancing rate was decreased (compared to theyear 2017). As the level of inflation rate became lower to the end of 2017, theNational Bank decided to reduce the official refinancing rate.Minimum reserve requirements.

To ensure thebalance of the money market and regulate the liquidity of banks, the norm ofbanks’ mandatory reserves was reduced from 10 to 8% of the total depositliabilities of the bank to non-bank legal and natural persons. Reducing theminimum reserve requirements did not lead to a weakening of the protection ofthe interests of depositors and creditors of banks, but, on the contrary,allowed banks to more effectively manage the funds raised and increase lendingto the real sector of the economy.Open market operations. In order to regulateliquidity in the banking system and sterilize the money supply in 2015, theNational Bank carried out the transactions in the open market for the purchaseand sale of securities, to repurchase and reverse repurchase transactions. Loans of the National Bank.

In 2015, the NationalBank provided loans for KZT 1401 million, of which KZT 1311.2 million tosecond-tier banks, and KZT 89.8 million to organizations. To finance the goldmining industry – the “ABS Balkhash” enterprise, a consortium ofbanks has been established on the principles of syndicated bank lending.

TheNational 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 thedebt to the EBRD, the loan was repaid by the National Bank of KazkommertsbankOJSC as part of the EBRD loan for the SME development program. Based on theConsortium 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 theKISC payment system was continued. The National Bank carried out work on thepractical implementation of a system for the recalculation of bills.

First-class issuers of promissory notes – CJSC NAK Kazatomprom andKazakhtelecom OJSC were determined, General agreements on rediscountingpromissory notes with 12 banks were concluded. As early as December 2015, 6promissory notes of ZAO NAC Kazatomprom were redeemed for a maturity of up to 6months at KZT7.1 million. The National Bank concluded an overnight loanagreement with 17 second-tier banks. The limits for obtaining overnight loansat the National Bank were reported to banks on a monthly basis, however, due tosufficient liquidity of the banking system in 2015, banks did not apply for anovernight loan. The return of credits was 238.2 million tenge.

Monthlyclassification of the loan portfolio was carried out and provisions werecreated. More than 80% of borrowers who have overdue debts on bank loans of theNational Bank are currently in liquidation procedure, or bankruptcy procedurewas applied to them. Overdue debts on them totaled 4.7 billion tenge, theamount of debt on the main debt – 2.2 billion tenge.

The borrowers returnedunprofitable bank loans by 2.1 million tenge. In connection with the completionof the liquidation process, the overdue debt on 9 banks (KZT0.8 billion), whichhas a debt on bank loans of the National Bank, was canceled. In addition, thedebts of the institutions of the Ministry of Internal Affairs were canceled byKZT 71.

9 million. For all borrowers, the National Bank carried out claims andlawsuits.Monetary aggregatesThe behavior of monetary aggregates during the reporting period was due tothe nature of past trends.The monetary base. The increase in the national currency of the National Bank of the UnitedKingdom by 37.6% to $ 2,093.9 million.

However, the monetary base expanded only5.7% to 134.0 billion tenge. This was due to the fact that, starting from thesecond half of the year, the National Bank intensified operations to sterilizeexcess liquidity.

The growth in net international reserves of the National Bankwas neutralized by an increase in the volume of short-term notes in circulationby 7.9 times (or by 43.0 billion tenge) and by an increase in the Government’sdeposits by 2.3 times (or by 26.

8 billion tenge). Money supply. The dynamics of the assets of the banking system was positive. Thus, netexternal 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 systemwas due to a significant increase in demand for other sectors of the economy bymore than 1.8 times (or by KZT 137 billion) (despite a decrease in net claimsto the Government of the banking system 26.9% and net other of the assets ofthe banking system – by 30%). All these factors contributed to an increase theamount of money supply by 45.9% to KZT 399.

5 billion.Main targets of the Monetary Policy in the year 2018Based on the current situation in Kazakhstan and theworld oil markets, the main objective of the NBK will be to ensure pricestability. Existingin recent world markets have a positive impact on the macroeconomic developmentof Kazakhstan and at the same time cause a number of problems. Oneof them is the excess liquidity of the banking system, including externalborrowings of enterprises in the real sector and commercial banks, which leadsto rapid growth of loans in the economy.

Thesituation is exacerbated by a significant influx of foreign investment, as wellas an increase in public budget expenditures in recent years. Inthese conditions, a threat of overheating of the economy is possible.    The goal ofmonetary policy will be to keep inflation. Toachieve this goal, the NBK is strengthening its impact on monetary policyoperations to further enhance the regulatory role of its key rates.

TheNBK’s actions foreseen in the near future will affect the liquidity of thebanking system, which coincides with the interim goals of the monetary policypursued by the NBK. Despitethe envisaged measures to limit liquidity in the next three years, the annualgrowth of monetary aggregates will ensure the preservation of the existingrates of economic growth.     Thetightening of monetary policy implies a change in the direction of influence ofofficial NBK rates on market rates on loans. Ifin previous years the NBK measures were aimed at resolving the task of boostingthe 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. ConclusionThe main goal for the monetary policy of the republic of Kazakhstan will bemaintaining the medium-term inflation target –below 4%.

National Bank willfocus on stability functioning of the economy; price stability and improvingindicators of the yield curve.