Kazakh CB Seeks Clarity About Economic Outlook

Kazakhstan’s central bank had a blind spot. The range of predictions by its in-house forecasters was too wide and inconsistent to be of much use in guiding monetary policy. The key to divining the future of Kazakhstan was to realize that capital movement in and out of the $220 billion economy is free in name only.

That single clue brought the outlook into sharper focus, said Vitaliy Tutushkin, director of the central bank’s research and statistics department. Before last August, the committee that decides on interest rates criticized the department’s forecasts for appearing to provide a “justification instead of an explanation of the situation,” he said in an interview in Almaty, Bloomberg reported.

Since then, the attitude has changed, according to Tutushkin, who’s been at the central bank for almost two decades and is now also a member of the policy board.

“The logic of forecasts became clearer,” he said. “Now the committee makes decisions based not only on the actual level of rates and its own understanding of the situation, but also using what we propose.”

At stake is the ability to gauge the pulse of the economy, which can now shape Kazakhstan’s policy like never before. Since monetary decisions work with a lag, the central bank needs clarity about the outlook to assess the impact its measures will have in practice.

“As the central bank, we recognize that formal and informal restrictions exist on the currency market, and participants in it aren’t free to speculate, which includes engaging in arbitrage deals,” Tutushkin said. “This is why we are introducing capital immobility in the formula for modeling the exchange rate and the base rate, giving it a 90% weight.”

The crash in oil prices forced the central bank’s hand by propelling decisions to shift to a free float a year and a half ago and transition to inflation targeting. The National Bank of Kazakhstan has grown more data-driven under Governor Daniyar Akishev, whose career started there in 1996 at the research department, which he went on to lead from 2003 to 2007.

The base rate, set as the new benchmark after the central bank abandoned its currency peg in August 2015, rose to as high as 17% last year to keep inflation in check. With the tenge stabilizing, policy makers slashed borrowing costs by a cumulative six percentage points since last May, including a bigger-than-forecast cut last week.