Macroeconomic Republic of Kazakhstan Since 2002, the benchmarks

Macroeconomic situation of the Republicof KazakhstanPreservation of favorable conditions in the world economy and on externalfinancial and trade markets contributed to Kazakhstan’s achievement ofsustainable economic growth and improvement of the macroeconomic situation inthe country.

GDP growth in Kazakhstan in January-May 2017 increased by 4.1%,compared with 2016. Inflation since the beginning of the year amounted to 3.3%.Inflation in annual terms fell to 7.5% compared with 16.

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7% in May 2016. Monthlyinflation in May 2017 was 0.5%.

The volume of investments in fixed assetsincreased by 5.2% (5.5% in January-April 2017, 3.

1% in January-March 2017). Thegrowth is due to the implementation of industrial-innovative and infrastructureprojects. In January-April, 2017, by sector, a significant increase ininvestments was observed in agriculture by 26.3%, to 47.2 billion tenge (150million USD) and real estate transactions by 13.5%, to 251.8 billion KZT (796million USD). The average nominal cash income of the population inJanuary-April 2017 amounted to 308.

4 thousand tenge and increased by 8.2% innominal terms in comparison with the corresponding period of 2016, in realterms by 0.5%. In these conditions, the main activities of the National Bank onmonetary policy were aimed at ensuring low inflation rates and maintaining astable nominal exchange rate of tenge. the growth of the gross domestic product(GDP) of Kazakhstan in 2018 is expected at the level of 5%.Orientation of the MonetaryPolicy in the Republic of KazakhstanSince 2002, the benchmarks of monetary policy have been aimed at achievingrelative macroeconomic stability in the country. The main direction of themonetary policy of the National Bank of Kazakhstan (NBK) in this period waspreparation and transition to the principles of inflation targeting, whichimplied a gradual departure from the target values ??for the monetary base ofthe gold and currency reserve to the main inflation indicators.

Such monetarypolicy meets the main objective of the National Bank to reduce inflation and,moreover, provides it with a greater confidence of market participants and thepursued monetary policy. The experience of countries shows that the followingfactors are the basis for successful introduction of the system of inflationtarget indicators:-Sustainable budgetsituation;-Guarantees of macroeconomic stability;-Stability of the financial system;-Independence of the Central Bank;-Sufficient understanding of the interrelations between the instruments of theCentral Bank;-Information openness.In 2016-2017, the monetary policy of the NBK was aimed at ensuring theinternal and external stability of the tenge. The main goal of the monetarypolicy of 2017 was to keep inflation at around 6%. To achieve these goals, thepulp and paper mill used open market operations and re-accounting operationswith promissory notes as its main instrument. The persistence of inflation inthese limits was facilitated by substantial economic growth, accompanied byhigh consumer demand and investment activity. The significant growth ofmonetary aggregates contributed to the persistence of inflation in the economy.The consequence of high consumer demand was an increase in cash in circulationby 59% to 379.

3 billion. In order to prevent a significant strengthening of thereal exchange rate of the tenge, as well as to smooth fluctuations in theexchange rate, the NBK participated in the domestic foreign exchange market asa buyer. The international reserves of the country as of January 1, 2017amounted to 90.8 billion US dollars and from the beginning of 2016 decreased by0.6%, including the National Fund assets in foreign currency from the beginningof 2016 decreased by 3.9% to 61, 0 billion US dollars. Gold and foreigncurrency assets of the National Bank amounted to 29.

8 billion US dollars andsince the beginning of 2016 grew by 6.9%. In order to contain inflation growthrates, the NBK in 2017 took measures to strengthen the regulatory impact ofofficial rates. To increase the role of the refinancing rate since 2004, thebills are recounted in accordance with the official refinancing rate.In 2017, the priority of the monetary policy of the National Bank was tomaintain a low inflation rate. Thepolicy of free floating exchange rate of tenge was continued.

As instrumentsfor regulating short-term liquidity of the banking system, operations were usedwith short-term notes, operations with government securities on the openmarket, regulation of official rates, refinancing of banks by re-calculation ofbills, provision of short-term loans to banks for maintaining liquidity (dayand overnight). To smooth the sharp short-term fluctuations in the exchangerate of the tenge and to prevent excessive appreciation of the tenge,operations were conducted in the domestic foreign exchange market (buying andselling foreign currency). The exchange rate of the tenge in relation to the USdollar decreased from 315.22 to 312.24 in 2017, which obviously happened underthe influence of strengthening the exchange rate of the Russian ruble againstthe US dollar. Since early 2017, the rate of USD / KZT has fallen from thelevel of 332.55.

The below chart represents the changing of the official rateKZT to USD during the year 2017.