The main challenges of monetary policy in the Republic of Kazakhstan at the contemporary stage development

Due to unstable developments in foreign markets as well as given a short-term nature of the monetary policy implemented by the National Bank of the Republic of Kazakhstan, the decision was made to formulate the monetary policy of the Republic of Kazakhstan for 2012 only. Key monetary policy and balance of payments indicators including monetary policy measures for the subsequent years will be specified based on the performance in 2012.

Ensuring the price stability i.e. maintaining a low rate of annual inflation adequate to the macroeconomic assumptions will remain as a top-priority area in the activity of the National Bank of the Republic of Kazakhstan in its monetary policy implementation in 2012.

Despite the fact that the National Bank of the Republic of Kazakhstan determined the price stability as the main monetary policy objective, the transition to the inflation targeting principles is postponed to a longer-run horizon. In the near-term the main efforts will be made to improve and enhance the efficiency of monetary policy instruments and to further increase the impact of taken measures on the condition of the money market.

The National Bank of the Republic of Kazakhstan while implementing the monetary policy of the Republic of Kazakhstan will take measures for flexible regulation of money supply in the economy. In the event of short-term liquidity squeeze in the money market, the National Bank of the Republic of Kazakhstan will increase the volume of liquidity operations.

At the same time, the National Bank of the Republic of Kazakhstan will be striving to maintain the monetary component at the optimal level and ensure that it doesn’t put additional inflationary pressure.

Short-term notes and deposits of banks with the National Bank of the Republic of Kazakhstan will remain as the main instruments for sterilization of excessive bank liquidity as well as for interest rate regulation in the financial market.

In 2012 the situation with liquidity in the money market will not cardinally change. Therefore, the maturities of these instruments are expected to be kept at the existing level: for short-term notes of the National Bank of the Republic of Kazakhstan – 3, 6 and 9 months, and for deposits attracted from banks – 7 days and 1 month.

Measures taken by the National Bank of the Republic of Kazakhstan will be aimed at enhancing the regulatory role of the interest rate policy and maintaining market rates in the market of short-term instruments within the interest rate band of the National Bank of the Republic of Kazakhstan.

Also, the possibility of a more efficient use of open market operations is considered, and optimal parameters (volumes, maturities, types of collateral) of liquidity provided to banks are analyzed. To this end, the National Bank of the Republic of Kazakhstan studies the experience of developed countries to consider using the best foreign practice in future.

In general, this will allow increasing the efficiency of liquidity management and regulation as well as building the yield curve of financial instruments in the money market.

As necessary, the National Bank of the Republic of Kazakhstan will provide refinancing loans to support short-term liquidity of banks. These operations will remain as short-term. At the same time, the National Bank of the Republic of Kazakhstan doesn’t expect the increase in demand for such resources. The term of these operations will not exceed one year.

In 2012 the National Bank of the Republic of Kazakhstan will continue to improve the mechanism of minimum reserve requirements in terms of increasing the efficiency of its application. [15]

The foreign exchange policy of the National Bank of the Republic of Kazakhstan is intended for providing a balance between the domestic and foreign competitiveness of the Kazakh economy. When implementing its exchange rate policy, the National Bank of the Republic of Kazakhstan will not allow significant fluctuations in the real exchange rate of the domestic currency that could have negative impact on the competitiveness of the domestic output in the ever-changing global market environment.

The exchange rate policy will be adequately responding to changes in world prices and terms of foreign trade thus establishing the foundation for the development of domestic economy. The country may tap into the accelerated development path by strictly adhering to this policy in combination with such factors as the use of new technologies and equipment and improved quality of labor.

Depending on an economic situation, the National Bank of the Republic of Kazakhstan will strive to further reduce its involvement in the foreign exchange market with a view to strengthen flexibility of the exchange rate of the Tenge.

In case of a cardinal change in the economic situation, dramatic and significant drop in the world energy prices and their retention at such level for a long period of time as well as the currency devaluation in the countries – major trading partners of the Republic of Kazakhstan, a dramatic change in the exchange rate of the Tenge is possible.

Irrespective of the economic development scenario monetary policy measures will be aimed at keeping the annual inflation rate within 6-8%. The increase in excessive money supply that boosts the inflationary pressure will be adequately offset by the growth in sterilization operations of the National Bank of the Republic of Kazakhstan.

The National Bank of the Republic of Kazakhstan will be applying any given monetary policy measures and foreign exchange policy measures taking account of integration processes occurring as part of the Common Economic Space.

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