New Kazakh Central Banker to Brave Tenge Risks in Cutting Rates

The arrival of a new Kazakh central bank governor has left economists split over what it means for the course of the country’s first cycle of monetary easing in three years.

(Bloomberg) — The arrival of a new Kazakh central bank governor has left economists split over what it means for the course of the country’s first cycle of monetary easing in three years.

Installed just days after August’s quarter-point cut to 16.5%, Timur Suleimenov wasted little time in promising continuity with his predecessor, warning that a range of risks may limit the space for further easing. The predicament has grown worse as the tenge comes under pressure, losing about 4% of its value against the dollar since his appointment on Sept. 4.

As Suleimenov takes the helm of the rate-setting committee on Friday, every economist polled by Bloomberg still expects the central bank to deliver a consecutive cut for the first time in half a decade.

But consensus is lacking on the likely size of a decrease, with Barclays Plc, Bank of America Corp., and JPMorgan Chase & Co. predicting the same step as in August. Bloomberg Economics and ING DiBa are among forecasters who see policymakers moving more aggressively and lowering the benchmark by half a percentage point to 16%.

“The National Bank reshuffle creates uncertainty over policy, but we are reluctant to see it as a downside risk to the tenge as of now,” BofA analysts Vladimir Osakovskiy and Mikhail Liluashvili said in a report. “The easing cycle is on track, but its pace and policy stance should not change as a result.”

President Kassym-Jomart Tokayev’s pick became a worry for investors because it gave the reins of monetary policy to a more political appointee after what was largely a by-the-book approach under Galymzhan Pirmatov. Days before the decision, the Kazakh leader said “the economy needs money” and called for measures that could prompt banks to boost lending and redistribute their windfall profits.

Suleimenov served as the president’s first deputy chief of staff since the deadly unrest early last year, which Tokayev called an attempted coup. Prior to joining the presidential administration as an assistant in 2019, he worked as deputy central bank governor for less than a month and was economy minister before then. 

The resumption of monetary easing ended a pause in place since the start of this year that kept official borrowing costs within a quarter-percentage point of the highest on record. Inflation has decelerated every month since February to fall under 12% in September, the slowest in over a year. Kazakh rates are now positive when adjusted for prices. 

But a bout of depreciation in neighboring Russia has in recent months become a drag on the Kazakh currency. It’s among the world’s 10 worst performers against the dollar since early July.

At a Sept. 28 meeting with investors, Suleimenov linked the tenge weakness to the rate cut in August, gains by the dollar globally, and Kazakhstan’s suspension of its mandatory rule requiring state-run companies to sell 30% of their foreign-exchange revenues in the domestic market.

High inflation expectations and a potential increase in fiscal stimulus are among factors limiting the space for further rate cuts, according to Suleimenov.

The Kazakh central bank has also said it reserves the right to wade into the currency market to smooth out the tenge’s fluctuations. 

Without intervening directly in September, it sold $1.2 billion from the oil fund for transfer into the budget while purchasing smaller amounts of dollars as part of its other operations. The central bank also expects to sell up to $1.6 billion from the oil fund this month.

“Proinflationary risks remain heated by strong domestic demand,” Barclays economists including Zalina Alborova said in a report. “Also, rising inflation pressures in Russia and significant weakening of the ruble pose upside risks for Kazakh inflation via the exchange rate channel.”

–With assistance from Joel Rinneby.

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