After a week the base rate is expected to be reviewed by the National Bank. Analysts have expressed their expectations from the upcoming meeting of the regulator, during which the issue will be resolved informs. 

Mr. Talgat Kamarov, the Chairman of the Board of Centras Securities believes that the level may drop by five to seven points.

‘Given the fact that in the last month REPO is invariably traded near the lower boundary of the corridor of 15% -19%, it is most likely that the base rate will be decreased. Depending on the degree of the National Bank’s effort the key indicator may fall down from 15% to 12%. In the case of growth or stabilization of oil prices, it is not ruled out that the drop will continue and reach the level below 10% by the year-end, – the analyst says.

At the same time, he notes that, depending on the depth of reduction of the base rate, the REPO rate may be reduced to a corridor of 10% -12%. Kamarov explains that the regulator’s actions will allow to reduce the cost of banks’ loans in KZT up to 14% -18% per annum.

Ayvar Baykenov,  Director of “Asyl-Invest” Analytics Department also expects that the regulator will change the rate to 15-16%. However, the LS’s interviewee recalls that many things depend on inflation expectations. He said that in January 2016 the inflation rate was 14.4%.

“The situation on the currency market has stabilized, and the rates on overnight REPO market fell to 15% per annum. One way or another, the rate has to be gradually decreased, in order to provide an enabling environment for the economy”, – Mr. Baykenov added.

Oleg Kuzmin, economist of Renessans Capital investment company (Russia, CIS), on the contrary, thinks that the National Bank will keep the base rate at the current level.

“On the one hand, we see stabilization of the situation in the domestic foreign exchange market, which allows us to think about preservation of a system of a percentage corridor with the current level of rates. On the other hand – inflation risks which are still rather high, especially given the task of reducing inflation to 6-8% in the medium term. In this situation, in our opinion, the National Bank will keep the rate unchanged, and there is no reason to expect any easing of interest rate policy until the second half of the year” – Mr. Kuzmin stated.

Timur Nigmatullin, financial analyst of “Finam” Group of companies notes that the financial regulator should better postpone the easing of monetary policy. According to his estimates, this is necessary to effectively neutralize the inflationary shock and increased inflation expectations against the backdrop of a sharp weakening of the national currency.

“If the rate is suddenly sharply reduced, it is likely to lead to further weakening of Tenge and increase the inflationary pressure. However, the banking sector will benefit from that and, perhaps, the economic growth will accelerate a little bit in the short term”, – Mr. Nigmatullin added.

Alexander Yurin, the independent economist, in turn, clarifies what logic the National Bank will be guided by when making the decision, and what short-term goals it will pursue.

“If his priority is to support the banking sector, it will cut the rate, despite the risk of increased pressure on the rate of national currency as a result of growth in speculative trading. But if he decides to focus on supporting the national currency, the rate can even be increased. At the same time, one can suppose with a high degree of confidence that the reason for that decision, whatever it may be, will be traditionally based on the need to achieve the inflation target or preserving the financial stability, or both of these arguments together”, – the LS interviewee stressed.

In conclusion, Mr. Yurin said that the revision of the base rate at the current time will not change anything globally.

“In the present circumstances such a measure is unlikely to significantly affect the volume of loans granted to the economy by banks and their economies, since these parameters are determined by the level of risk appetite and cost of funding. At the same time, the volume of trades in the exchange market is affected not by the cost of raising short-term money from the National Bank, but by the mere  fact that they can be raised”, – he explained.

As LS earlier informed, the meeting of the National Bank regarding the base rate will take place on the next Monday (14 March).


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