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Why the National Bank does not reduce its base rate

The base rate in Kazakhstan is 9%. The potential for its reduction is significantly limited with various factors, writes the Cronos portal.
Why the National Bank does not reduce its base rate

Among the factors of the domestic economy, the acceleration of inflationary processes in November 2020 after temporary stabilization in previous months should be singleв out. By the end of November, the annual inflation amounted to 7.3% forming above the target band of 4-6%. In addition, according to the results of population surveys, inflationary expectations are rising to 7.8%, which indicates their weak anchoring and sensitivity to uncertainty associated with the coronavirus pandemic. Reducing and anchoring inflation expectations is an important prerequisite for inflation to enter the target corridor of 4-6% in 2021.

External factors limiting further easing of monetary conditions are the increased likelihood of risk materialization against the backdrop of a new surge in the global incidence and fundamental instability in the oil market.

An unjustified reduction in the base rate in the current environment will lead to a further rise in inflation, decrease in the attractiveness of tenge instruments, as well as significant pressure on the exchange rate.

We would like to remind you that Kazakhstani entrepreneurs have earlier proposed the National Bank to lower the base interest rate to support SMEs.

Source: https://cronos.asia/ekonomika/pochemu-natsbank-ne-snizhaet-bazovuyu-stavku.html

Photos are from open sources.

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