Macroeconomic Republic of Kazakhstan Since 2002, the benchmarks

Macroeconomic situation of the Republic
of Kazakhstan

Preservation of favorable conditions in the world economy and on external
financial and trade markets contributed to Kazakhstan’s achievement of
sustainable economic growth and improvement of the macroeconomic situation in
the 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 16.7% in May 2016. Monthly
inflation in May 2017 was 0.5%. The volume of investments in fixed assets
increased by 5.2% (5.5% in January-April 2017, 3.1% in January-March 2017). The
growth is due to the implementation of industrial-innovative and infrastructure
projects. In January-April, 2017, by sector, a significant increase in
investments was observed in agriculture by 26.3%, to 47.2 billion tenge (150
million USD) and real estate transactions by 13.5%, to 251.8 billion KZT (796
million USD). The average nominal cash income of the population in
January-April 2017 amounted to 308.4 thousand tenge and increased by 8.2% in
nominal terms in comparison with the corresponding period of 2016, in real
terms by 0.5%. In these conditions, the main activities of the National Bank on
monetary policy were aimed at ensuring low inflation rates and maintaining a
stable nominal exchange rate of tenge. the growth of the gross domestic product
(GDP) of Kazakhstan in 2018 is expected at the level of 5%.

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Orientation of the Monetary
Policy in the Republic of Kazakhstan

Since 2002, the benchmarks of monetary policy have been aimed at achieving
relative macroeconomic stability in the country. The main direction of the
monetary policy of the National Bank of Kazakhstan (NBK) in this period was
preparation and transition to the principles of inflation targeting, which
implied a gradual departure from the target values ??for the monetary base of
the gold and currency reserve to the main inflation indicators. Such monetary
policy meets the main objective of the National Bank to reduce inflation and,
moreover, provides it with a greater confidence of market participants and the
pursued monetary policy. The experience of countries shows that the following
factors are the basis for successful introduction of the system of inflation
target indicators:

-Sustainable budget
-Guarantees of macroeconomic stability;
-Stability of the financial system;
-Independence of the Central Bank;
-Sufficient understanding of the interrelations between the instruments of the
Central Bank;
-Information openness.

In 2016-2017, the monetary policy of the NBK was aimed at ensuring the
internal and external stability of the tenge. The main goal of the monetary
policy of 2017 was to keep inflation at around 6%. To achieve these goals, the
pulp and paper mill used open market operations and re-accounting operations
with promissory notes as its main instrument. The persistence of inflation in
these limits was facilitated by substantial economic growth, accompanied by
high consumer demand and investment activity. The significant growth of
monetary aggregates contributed to the persistence of inflation in the economy.
The consequence of high consumer demand was an increase in cash in circulation
by 59% to 379.3 billion. In order to prevent a significant strengthening of the
real exchange rate of the tenge, as well as to smooth fluctuations in the
exchange rate, the NBK participated in the domestic foreign exchange market as
a buyer. The international reserves of the country as of January 1, 2017
amounted to 90.8 billion US dollars and from the beginning of 2016 decreased by
0.6%, including the National Fund assets in foreign currency from the beginning
of 2016 decreased by 3.9% to 61, 0 billion US dollars. Gold and foreign
currency assets of the National Bank amounted to 29.8 billion US dollars and
since the beginning of 2016 grew by 6.9%. In order to contain inflation growth
rates, the NBK in 2017 took measures to strengthen the regulatory impact of
official rates. To increase the role of the refinancing rate since 2004, the
bills are recounted in accordance with the official refinancing rate.

In 2017, the priority of the monetary policy of the National Bank was to
maintain a low inflation rate. The
policy of free floating exchange rate of tenge was continued. As instruments
for regulating short-term liquidity of the banking system, operations were used
with short-term notes, operations with government securities on the open
market, regulation of official rates, refinancing of banks by re-calculation of
bills, provision of short-term loans to banks for maintaining liquidity (day
and overnight). To smooth the sharp short-term fluctuations in the exchange
rate of the tenge and to prevent excessive appreciation of the tenge,
operations were conducted in the domestic foreign exchange market (buying and
selling foreign currency). The exchange rate of the tenge in relation to the US
dollar decreased from 315.22 to 312.24 in 2017, which obviously happened under
the influence of strengthening the exchange rate of the Russian ruble against
the US dollar. Since early 2017, the rate of USD / KZT has fallen from the
level of 332.55. The below chart represents the changing of the official rate
KZT to USD during the year 2017.


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