Kazakhstan looks to stave off rate hike with other ‘maneuvers’

Bloomberg

Kazakhstan’s central bank has a range of options besides changing its key interest rate as it looks to fine-tune monetary policy after markets stabilized and inflation came in below expectations, according to Governor Daniyar Akishev.
With the benchmark held twice at 9 percent after four cuts and anticipation building that a hike is on the way, Akishev said “the central bank has more maneuvers than just moving the rate.” Speaking in an interview just before a policy meeting, the governor specifically pointed to the rate corridor used to manage liquidity.
“Let me draw your attention to the fact that we have quite a wide corridor,” currently set at plus or minus one percentage point, Akishev said in Bali, where he was attending the annual meetings of the International Monetary Fund and the World Bank. The overnight deposit and lending rates form a band around the benchmark.
By narrowing the gap, the central bank would effectively lift the cost at which it borrows money, mostly by way of selling short-term notes. Such a move could buy it more time before having to pull off Kazakhstan’s first rate increase since 2016. Central banks across developing economies have already turned to monetary tightening after a sell-off in emerging-market assets triggered by higher US rates and a stronger dollar.
In Russia, Kazakhstan’s biggest trading partner, the central bank surprised last month by raising borrowing costs for the first time since 2014. Most economists surveyed by Bloomberg predict the National Bank of Kazakhstan will follow suit on Monday with a rate hike of its own.
But shifting slightly from the tougher rhetoric used after a meeting in September, when the central bank wouldn’t rule out tighter policy this year, Akishev said a measure of calm has settled over financial markets after turmoil in August and September. The Kazakh currency is now “undervalued” and its volatility is presently not a concern, he said.
“If you look at the situation during the past two weeks, even some fluctuations or external events aren’t leading to an increase in trade volumes,” suggesting there’s a lack of tension in the domestic currency market, Akishev said.
Just after the last rate decision, the central bank was also forced to spend $521 million in its first interventions in almost a year, as demand for dollars remained elevated after the threat of more sanctions against Russia pummeled the ruble. Kazakh policy makers also said monetary tightening could be needed to minimise risks from a weakening tenge.