Page 7 - Kazakh Outlook 2025

Rising services prices continued to be a key contributor to inflation, standing at 13.3%. Inflation dynamics have aligned with forecasts, reflecting the National Bank of Kazakhstan's moderately tight monetary policy and government anti-inflation measures. For 2025, the central bank expects inflation to measure 6.5%-8.5%. Inflation in 2024 slowed from the 9.8% registered in December 2023 and 20.3% recorded in December 2022. This demonstrated how Kazakhstan has been relatively successful in combating the negative impacts of the war in Ukraine on its economy.
Inflation in the country is also tied to inflation expectations driven by the exchange rate of the tenge against the dollar. In this regard, the tenge closely tracks exchange rate fluctuations in the currency of its second biggest trade partner Russia. In November, the ruble fell below its “psychological” mark of RUB100 against the greenback, with the tenge following the ruble’s trajectory, falling below the KZT500 vs the US dollar mark. The ruble fell following mounting escalations in Ukraine over the use of Western-made missiles by Ukraine to hit targets in Russia (and Russia’s own ICBM-type missile test in response to Ukraine’s strikes) coupled with new US sanctions against Gazprombank and other Russian banking sector entities. As such, any potential further escalations in the conflict in Ukraine in 2025, other geopolitical tensions with Russia or additional rounds of sanctions (including secondary sanctions against Kazakhstan itself) are likely to indirectly put pressure on the value of the tenge and spur further inflation. The course of currency events will largely rely on how the new US administration under Donald Trump handles the conflict. Trump has been promising to end the war.
The Kazakh central bank raised its policy rate by 100 bp to 15.25% on November 29, to combat inflationary pressures. The regulator has been heavily relying on withdrawals from the rainy-day National Fund to sell foreign currency in order to strengthen the tenge. Kazakh authorities have also set requirements on state-run companies to sell set amounts of their FX profits. These measures have supported the tenge and, indirectly, held inflation expectations in check. However, the IMF believes Kazakhstan’s overreliance on the fund only contributes to inflationary pressure.
In late November alone, the central bank sold over $1bn worth of assets from the National Fund with another $900mn set to be withdrawn for maintaining the tenge rate in December. This approach will likely prevail in 2025 due to an overall decline in the oil price, which will inevitably affect the value of both the ruble and the tenge.
The IMF’s own inflation projections are in line with the central bank’s expectations – the IMF forecasts inflation will conclude at 8.6% in 2024.
7 Kazakhstan Outlook 2025 www.intellinews.com