On July 20, 2020, the National Bank of Kazakhstan reduced the base rate to 9%per annum and narrowed the corridor to +/- 1.5 percentage points. One must give credit to Erbolat Dosayev and his team: having made a certain and, hopefully, positive gesture towards the market, they’ve taken care of themselves as well — as before, the rate for the liquidity withdrawal is to constitute 7,5%.
Nonetheless, since the rate for the liquidity provision has been reduced from 11,5% to 10,5%, the situation will get easier for two-tier banks, albeit just a little.
Since this decision seems to have been unexpected for the market, the logic behind the agency’s move is worthy of attention. Here is the way it’s presented in the agency’s press-release (text in bold by kz.expert).
«The decision on reducing the base rate was made in response to the weakened inflationary risks and stronger economic contraction in the first half of 2020 than expected in the forecast round of May-June of this year. The measures taken on tightening quarantine will have an additional disinflationary effect.
At the same time, core inflation (trimmed mean) and median inflation in June 2020 demonstrate more moderate dynamics — 6,1% and 4,4%, respectively. Worth noting a gradual acceleration since the beginning of the year (in December 2019 — 5,2% and 4,3%, respectively), but at nonetheless, core inflation indicators have grown slower than overall inflation, signaling a more moderate growth in the monetary component of inflation.
The risks of dollarization growth have significantly decreased; it has expanded the potential for rate cuts. As a result of prompt measures to protect tenge-denominated assets, following the results of 6 months of this year, dollarization of deposits fell from 43,1% to 40,0% according to preliminary data, which also favors the possibility of lowering the base rate.
The narrowing of the corridor is dictated by the stabilization of the situation in the financial markets and the gradual adaptation of the economy to new conditions. This decision will bring money market rates closer to the base rate, will reduce the volatility of money market rates and will help to create more stable expectations among market participants.
The new level of the base rate will, to a certain extent, compensate for the increased credit risks by reducing the cost of loans. The current decision will mitigate the impact of the consequences of tightening quarantine measures on the economy of Kazakhstan and support the recovery of growth in the economy».
In our opinion, the move made by the National Bank is quite justified from the agency’s standpoint. Moreover, it is completely in sync with the political will of Akorda and the Library that, despite their desire to overcome the current crises as soon as possible, want to preserve the political stability in the country and their monopolist position in politics and business.
This is why, contrary to other central banks, the National Bank of Kazakhstan does not participate in the state programs of pumping up the economy with liquidity, does not buy up assets from the market, does not give direct loans to heavy borrowers and, generally speaking, acts in a very passive fashion from the internal political standpoint. There can be no doubt that the Bank’s main task of today is to preserve the country’s banking system that mainly consists of financial institutes belonging to or controlled by the members of the ruling top, usually by Nursultan Nazarbayev’s closest relatives and allies.
In our opinion, it is this circumstance (the fact that a significant part of the Kazakh banking sector is intimately and tightly connected with the political top of the Kazakh political system and the «super-presidential» vertical) that, a long time ago, turned the financial sector into a golden calf. That very one that can only be fed and protected but never touched.
Meanwhile, the idea of nationalising if not all the banks controlled by the Elbasy’s relatives and allies (luckily, there is more than enough legal and political foundations for that) then at least one — Halyk Bank of Kazakhstan — seems quite rational in the current dire circumstances.
This kind of nationalisation, without any material compensation as it was done, for instance, in the case of BTA Bank JSC in 2009, would solve a number of problems.
At the same time, we do acknowledge that it would create enough problems as well, for instance, in terms of resolving the conflict with Timur and Dinara Kulibayevs. On the other hand, the Kazakh state has got enough experience in dealing with foreign jurisdictions, so it should be able to successfully manage the situation while obtaining a powerful and a ready to be used tool that would help to solve the problem of the dramatic growth of business loans.
And then, other players will follow Halyk Bank’s footsteps.
