Kazakhstan's National Bank has decided to keep its base rate unchanged at 16.5% annually, with a corridor of ±1 percentage point. This move isn't surprising. In the face of persistent inflationary pressure, active domestic demand, and a volatile global environment, the regulator is choosing caution over premature easing. So, why is the rate staying put, and what does it mean for the economy, businesses, and everyday people? Let's take a closer look, DKnews.kz reports.
Inflation Still High - What's Driving Prices?
In June, annual inflation reached 11.8%. Price increases were seen across the board, but services remain the biggest contributor, with service sector inflation hitting 16.1%. This surge stems from rising prices for both market-based and regulated services, driven by the ongoing tariff reform campaign. Households are feeling the pinch, with higher electricity, heating, and water bills.
Food inflation also plays a significant role at 10.6%, fueled by higher prices for imports and key agricultural products. Kazakhstan still relies heavily on imported goods - even staple vegetables like onions and carrots are often brought in from abroad.
Monthly Inflation Slows, But Underlying Pressure Persists
On a monthly basis, inflation slowed to 0.8% in June, which might seem encouraging. However, core inflation rose to 0.9%, and seasonally adjusted inflation reached 1.0%, indicating that deeper inflationary forces remain active. These include:
- Tariff hikes
- Fiscal stimulus
- Strong consumer demand supported by rapid growth in retail lending (over 32% year-on-year in May)
What Do People Expect?
Inflation expectations among the population have slightly declined, but they remain elevated and unstable. This means people still expect prices to rise - so they prefer to spend now rather than save. That behavior itself fuels further inflation, creating a self-reinforcing cycle.
Global Pressures Ease Slightly - But Risks Remain
The good news: external inflationary pressure has eased somewhat, thanks to slowing inflation in Russia, Kazakhstan’s main trading partner. Globally, food prices remain high (excluding grains), while inflation in developed economies continues to decline. But central banks aren’t relaxing just yet.
The European Central Bank is gradually cutting rates to support growth, but it has also warned about lingering inflation risks. Meanwhile, the US Federal Reserve is holding off on rate cuts for now, citing uncertainty around fiscal and trade policy.
Russia’s central bank cut its key rate to 20% in June, noting it would maintain tight policy to return inflation to target by 2026.
Geopolitics, Oil, and Market Volatility
External risks are far from over. Financial and commodity markets remain highly volatile, reflecting geopolitical tensions - especially in the Middle East - and ongoing trade disputes. In this context, oil prices are currently aligned with the optimistic forecast, offering Kazakhstan a degree of economic support.
Kazakhstan's Economy Is Growing Strongly
Despite inflationary pressures, the real economy is performing well. Between January and May 2025, Kazakhstan’s GDP grew by 6%. The strongest sectors include:
- Transport (+23.1%)
- Construction (+15.4%)
- Retail trade (+7.8%)
- Mining and manufacturing (+7.8% and 6%, respectively)
These figures point to high business activity and sustained economic momentum.
Lending Boom Feeds Demand
Retail lending grew by 32.4% year-on-year in May. Consumers are taking advantage of installment plans, active marketing offers, and easy loan approvals, driving up spending. That strong demand is helping keep inflation high.
At the same time, investment activity remains strong, rising 18.2% in the first five months of the year. Both private capital and state funds are playing a role.
Where Are the Risks?
The main pro-inflationary risks are domestic, driven by:
- Strong internal demand
- Elevated inflation expectations
- Fiscal stimulus
- The ongoing effects of tariff and tax reforms
External risks also linger, tied to global trade uncertainty, geopolitical instability, and increased volatility in commodity and financial markets.
What Is the National Bank Doing?
The National Bank is actively working to contain inflation, using a mix of policy tools:
- Tightening retail lending through macroprudential restrictions
- "Mirroring" FX operations to stabilize currency markets
- Revising reserve requirements to limit excess liquidity
- Slowing tariff hikes, as announced by the government, to reduce pressure on paid service prices
Additionally, close coordination with the Government is seen as critical to success. Joint efforts on fiscal consolidation and macroeconomic balance are already underway.
What's Next?
Given the current economic balance, the base rate is likely to remain at 16.5% through the end of 2025. However, the National Bank has made it clear: a rate hike is still on the table if inflation risks intensify.
The next monetary policy decision will be based on an updated macroeconomic forecast. The announcement is scheduled for August 29, 2025, at 12:00 Astana time.
Bottom Line: Stability Over Speed
By holding the base rate steady, the National Bank is sending a clear message: tackling inflation remains a top priority. While it means borrowing costs for mortgages and personal loans will stay high in the short term, the broader goal is economic stability and sustainable growth.
