Kazakhstan Rates Remain On Hold As Disinflation Is Offset By Rising External Risks

(MENAFN- ING)

18.00	NBK base rate unchanged
As expected

Kazakhstan keeps rates steady as NBK prioritises caution over early easing

Kazakhstan's central bank (NBK) left the base rate unchanged at 18.00% and reaffirmed its intention to maintain this stance through the first half of 2026. The decision was in line with the previous guidance and expectations. It reflects a balance between a gradually improving domestic inflation trend and higher global uncertainty linked to the Middle East tensions. While the tone of the statement was broadly dovish, the NBK still sees near‐term risks as too elevated to begin its easing cycle.

NBK base rate left unchanged amid slowing CPI and improved expectations Disinflation continues, allowing the NBK to sound more dovish

Continued slowdown in inflation remains supportive of a future rate cut. Consumer price inflation decelerated to 11.7% year-on-year in February, 0.6 percentage points below December levels. Household inflation expectations fell by 1ppt year-to-date despite the sizeable VAT increase from 12% to 16% in January

Several factors continue to reinforce disinflation:

• A stronger tenge, which strengthened by 11% to USD since nearly the end of 3Q25.
• Tighter macroprudential policies in the banking sector, restraining bank lending and monetary supply growth.
• The temporary moratorium on regulated utility tariff increases, limiting services inflation.
• A benign global food price backdrop, with YoY dynamics still negative.

Reflecting this improvement, the NBK narrowed its 2026 CPI forecast to 9.5-11.5% (from 9.5-12.5%). The GDP forecast remains unchanged at a moderate 3.5-4.5%.

CPI precursors supportive of further deceleration Why caution still prevails

The NBK highlighted several risks preventing an early cut:

• Domestic utility tariffs: the moratorium on tariff hikes may expire as early as 2Q26, following the upcoming constitutional referendum, potentially lifting regulated prices.
• Fiscal uncertainty: prospects for consolidation remain uncertain. Government spending pressures persist, and quasi‐fiscal spending conducted via the Baiterek holding is expected to amount to roughly 4-5% of GDP.

These factors limit the NBK's confidence in a sustained inflation slowdown in the short term.

External environment is an additional argument in favour of caution

While it was not the focus of the recent NBK communication, we believe the recent spike in the tensions in the Middle East is, on balance, an additional reason to refrain from monetary policy easing.

• Oil gains help the macro picture, but not necessarily the tenge

Amid the military conflict in Iran, Kazakhstan's macro fundamentals benefit from higher oil prices. Each sustained +$10/bbl increase in Brent adds an estimated $6bn to annual export receipts (around 1.8% of GDP). However, the FX channel is less straightforward. The tenge is unlikely to reap the full benefit of stronger oil because sizeable dividend outflows absorb part of the oil windfall; the global risk‐off mood may also weigh on portfolio inflows, which has recently become more important, with non‐resident inflows into the government bond market of $1.7bn in 2025 and an additional $0.6bn year to date.

• Fiscal implications remain mixed

Higher oil prices also support the sovereign wealth fund (NFRK, the primary receiver of fuel taxes in Kazakhstan), adding about $1.5bn (0.5% of GDP) to fuel‐related revenues per each +$10/bbl. But this could be partly offset by lower investment income due to a global market downturn. In 2024-25, the investment income totalled a significant 3.6-4.0% of GDP, while in 2022 – another year significantly affected by a war – NFRK recorded a loss of 0.8% of GDP. The state budget (central government plus municipalities), which is currently in a 2.7% of GDP deficit, is unlikely to benefit from higher oil prices, and its performance will depend on the government's ability to proceed with spending consolidations, where the track record has yet to be established.

• Imported inflation may limit room for disinflation

Around 30% of Kazakhstan's imports originate from economies experiencing rising inflation risks, including major EU trade partners and Turkey. This concentration limits the scope for further disinflation, especially if external price pressures intensify.

Outlook: Cuts still likely, but only later in the year

We expect year‐end inflation to ease to around 10% YoY. Provided the external environment stabilises and tariff/fiscal risks remain manageable, the NBK has room for roughly 200bp of cuts in 2H26, likely bringing the policy rate to around 16.00% by the year-end.

On FX, we continue to see limited long‐term sensitivity of USD/KZT to oil prices; a 17% rise in Brent and higher OPEC quotas have delivered only a 0.8% appreciation in USD/KZT so far. Meanwhile, thanks to NBK's cautious approach, the high real interest rate should provide some additional insulation to portfolio flows, keeping us constructive on the tenge for the near-term.

Kazakhstan maintains competitive real rates in the CIS region

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