Page 10 - Kazakh Outlook 2022

The figure marked a slight deceleration after months of acceleration
partly thanks to the National Bank of Kazakhstan’s (NBK’s) decision to
raise its policy rate by 25 basis points in order to curb inflation. Inflation
was primarily driven by annual food inflation, which stood at 10.6% in
September - the double-digit food inflation rate was a result of global
coronavirus pandemic-related restrictions while the impact of severe
drought on agriculture may also have been a factor.

The regulator was previously aiming to achieve a 4% inflation rate in
2020, but consumer prices moved away from the upper boundary of the
4-6% inflation corridor that the central bank was maintaining. Inflation
officially surpassed the 6% boundary in March 2020 and continued to
rise due to the effects of the pandemic.

“CPI accelerated from its target levels in early 2020 (4-6%) to 8.7% YoY
in November. A gradual tapering of the fiscal stance is unlikely to help
CPI to reach its targeted range of 4-6% by YE22 (currently at 6.5%
YoY). To curb the second-round effects, NBK could raise the base rate
to 25bps in 1Q22 and leave it at 10% until YE22,” Sova Capital said.

In August, Fitch Ratings affirmed Kazakhstan's long-term
foreign-currency issuer default rating (IDR) at 'BBB' with a stable
outlook.

Kazakhstan's 'BBB' IDRs reflect strong fiscal and external balance
sheets that have proved resilient to COVID-19 and oil price shocks
along with financing flexibility underpinned by accumulated oil revenue
savings, Fitch said. On the downside, Kazakhstan was facing high
dependence on commodities, higher inflation, lower but improving
governance scores and an underdeveloped economic policy framework
relative to 'BBB' peers, it added.

“Large sovereign external buffers in the form of external assets of the
state oil fund (NFRK) and the central bank (NBK) are seen as a key
rating strength for Kazakhstan. Combined external assets at the NFRK
and NBK had declined marginally to $92bn (47% of GDP) at the end of

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